<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------
(AMENDMENT NO. ___)
[x] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14-a6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AK STEEL HOLDING CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
================================================================================
<PAGE>
AK STEEL HOLDING CORPORATION RICHARD M. WARDROP, JR.
703 CURTIS STREET CHAIRMAN AND CHIEF
MIDDLETOWN, OHIO 45043-0001 EXECUTIVE OFFICER
April 9, 1998
To our Stockholders:
It is a pleasure to invite you to the 1998 Annual Meeting of Stockholders of
AK Steel Holding Corporation. The meeting will be held at 10:00 a.m. on
Thursday, May 21, 1998, at the Sheraton Chicago Hotel & Towers, Chicago,
Illinois.
Please read the enclosed Notice of Meeting and accompanying Proxy Statement
carefully. For those of you who cannot attend the meeting in person, I urge
you to participate by completing, signing, and returning your proxy in the
enclosed envelope. Your vote is important, and the management of AK Steel
appreciates your cooperation in directing proxies to vote at the meeting.
Attendance at the Annual Meeting will be limited to stockholders of record
as of the close of business on March 31, 1998, or their duly appointed
proxies, and to guests of management. If you or your appointed proxy plan to
attend in person, please complete, sign, detach and return the enclosed
Request for Admittance card.
Your continuing interest in our Company is appreciated and I look forward to
seeing you at the Annual Meeting.
Sincerely,
/s/ Richard M. Wardrop Jr.
Chairman and Chief Executive Officer
<PAGE>
AK STEEL HOLDING CORPORATION
703 CURTIS STREET
MIDDLETOWN, OHIO 45043
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
The 1998 Annual Meeting of Stockholders of AK Steel Holding Corporation (the
"Company") will be held in the Ohio Room of the Sheraton Chicago Hotel &
Towers, 301 East North Water Street, Chicago, Illinois, on Thursday, May 21,
1998 at 10:00 a.m., for the following purposes:
1. To elect nine directors of the Company;
2. To approve a proposed amendment of the Company's Certificate of
Incorporation to increase the number of authorized shares of Common
Stock from 75,000,000 to 200,000,000;
3. To approve a proposed amendment of the Company's Stock Incentive
Plan to increase the number of shares with respect to which options
and restricted stock awards may be granted under the plan and to
extend the term of the plan for an additional four years from 2003
to 2007;
4. To approve the material terms of the Company's Annual Management
Incentive Plan;
5. To approve the material terms of the Company's Long-Term Performance
Plan; and
6. To transact such other business as properly may come before the
meeting.
The Board of Directors has fixed March 31, 1998 as the record date for the
determination of stockholders entitled to receive notice of and to vote at the
Annual Meeting.
By order of the Board of Directors,
John G. Hritz
Secretary
Middletown, Ohio
April 9, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK, DATE AND
SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY
WRITTEN NOTICE TO THAT EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR
BY ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON.
<PAGE>
AK STEEL HOLDING CORPORATION
703 CURTIS STREET
MIDDLETOWN, OHIO 45043
----------------
PROXY STATEMENT
----------------
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of AK Steel Holding Corporation (the "Company") of
proxies to be voted at the Annual Meeting of Stockholders of the Company to be
held on May 21, 1998 and at any and all adjournments thereof.
At the meeting, holders of the Company's Common Stock will vote for the
election of nine directors and consider and act upon management proposals (i)
to approve an amendment to the Certificate of Incorporation of the Company to
increase the number of shares of the Company's authorized Common Stock, (ii)
to approve an amendment of the Company's Stock Incentive Plan to increase the
number of shares available for the grant of options and restricted stock
awards under the plan and to extend the term of the plan for an additional
four years and (iii) to approve the material terms of each of the Company's
Annual Management Incentive Plan and Long-Term Performance Plan. Each duly
executed proxy received prior to the meeting will be voted in accordance with
the choices specified therein by the stockholder. If no contrary direction is
specified, the proxy will be voted FOR the election as directors of the nine
nominees listed in this Proxy Statement and FOR approval of each of
management's proposals described in this Proxy Statement. Stockholders who
execute proxies may revoke them at any time before they are voted by filing
with the Company a written notice of revocation, by delivering a duly executed
proxy bearing a later date or by attending the meeting and voting in person.
The Board of Directors has fixed the close of business on March 31, 1998 as
the record date for the determination of stockholders entitled to notice of
and to vote at the meeting. At that date, there were issued and outstanding
59,316,068 shares of Common Stock. Each holder of Common Stock is entitled to
one vote for each share held on all matters that come before the meeting.
ELECTION OF DIRECTORS
In accordance with the Company's By-laws, the Board of Directors has fixed
the number of directors at nine. If elected, each of the nominees listed below
will serve as a director of the Company for a term expiring on the date of the
1999 Annual Meeting of Stockholders and until his or her successor is duly
elected and qualifies. If any nominee is unable to serve, proxies may be voted
for another person designated by the Board of Directors. The Company has no
reason to believe that any nominee will be unable to serve.
INFORMATION CONCERNING NOMINEES FOR DIRECTORS
Set forth below is information with respect to each of the nine nominees for
election as directors. Each of the nominees is presently serving as a director
of the Company.
ALLEN BORN
Mr. Born, age 64, a director of the Company since March 2,
1995, is Chairman and Chief Executive Officer of Alumax Inc.,
having served in that position since November 1993. For more
than five years prior thereto he served as Chairman and Chief
[PHOTO] Executive Officer of Amax Inc. Mr. Born also is a director of
Amax Gold Inc., Cyprus-Amax Minerals Company, Inmet Mining and
the International Primary Aluminium Institute and serves as
Chairman of the Aluminum Association, as a member of the Board
of Trustees of the Robert W. Woodruff Arts Center and as a
Vice Chairman of the Kennedy Center's Corporate Fund Board.
<PAGE>
JOHN A. GEORGES
Mr. Georges, age 67, a director of the Company since April 7,
1994, is a Senior Managing Director of Windward Capital
Partners LLP, a private investment partnership. He is the
retired Chairman and Chief Executive Officer of International
[PHOTO] Paper Company, having served in that position from 1985 to
March 1996. He also is a director of International Paper
Company, Ryder System Inc. and Warner-Lambert Company. Mr.
Georges is a member of The Business Council, the Trilateral
Commission and the Board of the University of Illinois
Foundation.
DR. BONNIE GUITON HILL
Dr. Hill, age 56, a director of the Company since April 7,
1994, is President and Chief Executive Officer of The Times
Mirror Foundation and a Vice President of The Times Mirror
Company, having been elected to those positions in February
[PHOTO] 1997. From July 1992 until January 1997, she was Dean of the
McIntire School of Commerce at the University of Virginia. She
served as Secretary of the State and Consumer Services Agency
for the State of California from April 1991 to July 1992. She
also is a director of Niagara Mohawk Corporation, Hershey
Foods Corporation and Louisiana-Pacific Corporation.
ROBERT H. JENKINS
Mr. Jenkins, age 55, a director of the Company since January
24, 1996, has served as Chairman of the Board of Sundstrand
Corporation since April 1997 and as President and Chief
Executive Officer of that company since September 1995. For
[PHOTO] more than five years prior thereto, Mr. Jenkins was employed
by Illinois Tool Works as its Executive Vice President and in
other senior management positions. Mr. Jenkins also is a
director of Solutia, Inc. and serves as a member of the boards
of trustees of the Manufacturers Alliance and the National
Association of Manufacturers.
LAWRENCE A. LESER
Mr. Leser, age 62, a director of the Company since May 17,
1995, is Chairman of the E.W. Scripps Company, having also
[PHOTO] served as its Chief Executive Officer from July 1985 until May
1996. Mr. Leser also is a director of Union Central Life
Insurance Company and a Trustee of Xavier University.
2
<PAGE>
ROBERT E. NORTHAM
Mr. Northam, age 67, has been a director of the Company since
April 7, 1994. He retired as Executive Vice President and
[PHOTO] Chief Financial Officer of J.C. Penney Company, Inc. in
January 1996, having served in that position since February
1982. He also served in the office of the chairman of J.C.
Penney Company, Inc. from June 1992 until his retirement.
CYRUS TANG
Mr. Tang, age 68, a director of the Company since April 7,
1994, has served since 1971 as President and Chief Executive
Officer of Tang Industries, Inc., which, together with its
[PHOTO] affiliates, operates various businesses, including steel
distribution and processing, metal stamping and fabrication,
ferrous and non-ferrous metal scrap trading and processing,
aluminum die casting, extrusions and recycling, wood and steel
office furniture manufacturing and pharmaceuticals.
DR. JAMES A. THOMSON
Dr. Thomson, age 53, a director of the Company since March 18,
1996, is the President and Chief Executive Officer of The Rand
Corporation, having served in that capacity since August 1989.
He also serves as a director of Texas Biotechnology
[PHOTO] Corporation and as a Trustee of the International Institute
for Strategic Studies in London and the Los Angeles World
Affairs Council. Dr. Thomson is a member of the Council on
Foreign Relations in New York and the Council of Economic
Advisors to the Governor of California.
RICHARD M. WARDROP, JR.
Mr. Wardrop, age 52, was elected Chairman of the Board of the
Company effective January 27, 1997. He has been a director
since March 2, 1995 and Chief Executive Officer since May 16,
[PHOTO] 1995. Mr. Wardrop also served as President of the Company from
April 7, 1994 until March 20, 1997. From June 1992 to April 7,
1994, Mr. Wardrop served as Vice President, Manufacturing of
the Company's predecessor, Armco Steel Company, L.P.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF EACH OF
THE FOREGOING NOMINEES.
3
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit and Finance Committee, a
Compensation Committee, a Public Affairs Committee and a Nominating and
Governance Committee.
The Audit and Finance Committee recommends to the Board of Directors the
firm of certified public accountants that will be appointed to serve as the
independent auditors of the Company's annual financial statements. The Audit
and Finance Committee also meets with representatives of that accounting firm
and the Company's internal audit staff to review the plan, scope and results
of the annual audit and the recommendations of the independent accountants
regarding the Company's internal accounting systems and controls. The current
members of the Audit and Finance Committee are Messrs. Georges (Chairperson),
Born, Northam and Tang.
The Compensation Committee makes recommendations to the Board of Directors
with regard to the Company's compensation and benefits policies and practices.
The Committee also reviews and makes recommendations to the Board of Directors
with respect to the compensation of the Company's principal executive officers
and administers the Company's Stock Incentive Plan. The current members of the
Compensation Committee are Messrs. Northam (Chairperson), Born and Leser and
Dr. Hill.
The Public Affairs Committee reviews and makes recommendations to the Board
of Directors regarding the Company's public affairs policies and practices,
including its policies with respect to environmental compliance, employee
safety and health and equal employment opportunities. The current members of
the Public Affairs Committee are Dr. Hill (Chairperson), Messrs. Georges and
Jenkins and Dr. Thomson.
The Nominating and Governance Committee reviews and makes recommendations to
the Board of Directors regarding the size, organization, membership
requirements, compensation and other practices and policies of the Board. The
current members of the Nominating and Governance Committee are Messrs. Leser
(Chairperson), Jenkins and Tang and Dr. Thomson.
ATTENDANCE AT MEETINGS
During 1997, there were six regular meetings and three special telephonic
meetings of the Board of Directors, six meetings of each of the Audit and
Finance Committee and the Compensation Committee and two meetings of each of
the Public Affairs Committee and the Nominating and Governance Committee. Each
director attended at least 75% of the meetings of the Board and of each
committee of which he or she was a member.
COMPENSATION OF DIRECTORS
During 1997, each director who is not an employee of the Company received an
annual fee of $30,000 for service on the Board of Directors. One-half of that
amount was paid in the form of shares of Common Stock of the Company valued at
market on the date of issuance and the balance was paid in cash (receipt of
which may have been deferred pursuant to a prior election) or, at the
director's option, in the form of additional shares of Common Stock. Each
director who chairs a committee of the Board of Directors received an
additional annual fee of $3,600 for such service. Non-employee directors also
were paid a fee of $1,500 for each Board meeting and each committee meeting
they attended and were reimbursed for their expenses incurred in attending
those meetings. An employee of the Company who serves as a director receives
no additional compensation for such service. Non-employee directors are
required to retire from the Board at age 70 but are entitled thereafter to an
annual retainer equal to the annual director's fee in effect at the time of
such retirement, provided that they remain available to the Chairman on a
consulting basis. Upon first being elected to the Board, each non-employee
director also is granted options under the Company's 1994 Stock Incentive Plan
to purchase a total of 10,000 shares of the Company's Common Stock at its then
prevailing market price. The options vest on the first anniversary of the date
of grant and may be exercised at any time thereafter until the tenth
anniversary of the grant date. Effective January 1, 1998, the annual fee for
service as a director was increased to $33,000.
4
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons
who own beneficially more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors
and greater-than-ten-percent beneficial owners are required by Rule 16a-3(e)
under the Exchange Act to furnish the Company with copies of all reports that
they file pursuant to Section 16(a).
To the Company's knowledge, based solely upon a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers and directors were complied with, except that a report for
one transaction was filed late by Dr. Hill and reports for two transactions
were filed late by Mr. Tang.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In the ordinary course of business, the Company sells finished steel to, and
purchases steel scrap from, an affiliate of Tang Industries, Inc., of which
Mr. Tang, a director of the Company, is President and Chief Executive Officer.
During 1997, those sales and purchases, which were made on arms'-length terms,
aggregated $21.5 million and $1.1 million, respectively.
STOCK OWNERSHIP
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth as of March 31, 1998 information with respect
to the beneficial ownership of the Company's Common Stock by (i) each officer
of the Company, named in the Summary Compensation Table on page 7, (ii) each
current director and each nominee for election as a director and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED OUTSTANDING
BENEFICIALLY(1) SHARES
--------------- -------------
<S> <C> <C>
Allen Born.................................. 14,149 *
Mark G. Essig............................... -- --
John A. Georges............................. 15,211 *
Dr. Bonnie Guiton Hill...................... 3,853 *
John G. Hritz............................... 53,163 *
Robert H. Jenkins........................... 11,873 *
Lawrence A. Leser........................... 11,975 *
Richard E. Newsted.......................... 202,958 *
Robert E. Northam........................... 12,603 *
Cyrus Tang.................................. 57,611 *
Dr. James A Thomson......................... 11,373 *
Richard M. Wardrop, Jr...................... 751,361 *
James L. Wareham............................ 60,065 *
All directors and executive officers as
a group (20 persons)....................... 1,568,733 2.6%
</TABLE>
- --------
*Less than 1%.
(1) Includes shares subject to stock options exercisable within 60 days.
5
<PAGE>
OTHER BENEFICIAL OWNERS
The following table sets forth information with respect to each person known
by the Company to own beneficially more than five percent (5%) of the
outstanding Common Stock of the Company:
<TABLE>
<CAPTION>
NAME AND PERCENTAGE
ADDRESS OF
OF BENEFICIAL SHARES OWNED OUTSTANDING
OWNER BENEFICIALLY SHARES(1)
------------- ------------ -----------
<S> <C> <C>
FMR Corp. (2).................................. 5,212,800 8.6%
82 Devonshire Street
Boston, Massachusetts 02109
Goldman, Sachs & Co. (3)....................... 5,542,762 9.1%
85 Broad Street
New York, New York 10004
Kawasaki Steel Corporation..................... 8,510,638 14.0%
Hibiya, Kokusai Building
2-3 Uchisaiwaicho, 2-Chome
Chiyoda-Ku, Tokyo 100 Japan
Neuberger & Berman, LLC (4).................... 8,263,150 13.6%
605 Third Avenue
New York, New York 10158
Sasco Capital, Inc. (5)........................ 3,583,900 5.9%
10 Sasco Hill Road
Fairfield, Connecticut 06430
Vanguard/Windsor Fund, Inc. (6)................ 6,199,352 10.2%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
Wellington Management Company (7).............. 6,440,445 10.6%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- --------
(1) As of December 31, 1997.
(2) Based on information set forth in a statement on Schedule 13G, dated
February 14, 1998, FMR Corp., a holding company for subsidiaries that
include investment advisers registered under the Investment Advisers Act
of 1940, has sole power to dispose or to direct the disposition of an
aggregate of 5,212,800 shares. Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp., is the beneficial
owner of all of those shares as a consequence of its acting as investment
adviser to several investment companies registered under the Investment
Company Act of 1940.
(3) Based on information set forth in a statement on Schedule 13G, dated
January 10, 1998, Goldman, Sachs & Co., a broker-dealer registered under
the Securities Exchange Act of 1934 and an investment adviser registered
under the Investment Advisers Act of 1940, has shared power to dispose or
direct the disposition of an aggregate of 5,542,762 shares held by or for
the account of various clients for whom it acts as an investment adviser,
with shared power to vote an aggregate of 5,283,962 of those shares.
(4) Based on information set forth in a statement on Schedule 13G, dated
February 9, 1998, Neuberger & Berman, LLC, a broker-dealer registered
under the Securities Exchange Act of 1934 and an investment adviser
registered under the Investment Advisers Act of 1940, has shared power to
dispose or direct the disposition of an aggregate of 8,263,150 shares held
by or for the account of various clients for whom it serves as an
investment adviser, with sole or shared power to vote an aggregate of
8,187,996 of those shares.
(5) Based on information set forth in a statement on Schedule 13G, dated
January 30, 1998, Sasco Capital, Inc., an investment adviser registered
under the Investment Advisers Act of 1940, has sole power to dispose or
direct the disposition of 3,583,900 shares held by or for the account of
various clients for whom it serves as an investment adviser, with sole
power to vote an aggregate of 2,082,200 of those shares.
(6) Based on information set forth in a statement on Schedule 13G, dated
February 9, 1998, Vanguard/Windsor Fund, Inc., an investment company
registered under the Investment Company Act of 1940, has sole power to
vote and shared power to dispose or direct the disposition of an aggregate
of 6,199,352 shares.
(7) Based on information set forth in a statement on Schedule 13G, dated
January 12, 1998, Wellington Management Company, an investment adviser
registered under the Investment Advisers Act of 1940, has shared power to
dispose or direct the disposition of an aggregate of 6,440,445 shares
owned by various clients for whom it serves as an investment adviser, with
shared power to vote an aggregate of 241,093 of those shares.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
Annual compensation paid to executive officers of the Company consists of
salary and cash bonus awards under the Company's Annual Management Incentive
Plan. Long-term compensation consists of restricted stock awards and stock
options under the Company's Stock Incentive Plan and payouts in the form of
cash and restricted stock under the Company's Long-Term Performance Plan.
The following table sets forth the cash compensation, as well as certain
other compensation, paid or accrued by the Company for each of the past three
years to the Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company (the "Named Executives") serving
as such at December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
----------------- -----------------------------------
AWARDS PAYOUTS
------------------------ ----------
ALL
RESTRICTED SECURITIES OTHER
NAME AND STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION SALARY BONUS(4) AWARDS(5) STOCK OPTIONS PAYOUTS(6) SATION(7)
AT 12/31/97 YEAR ($) ($) ($) (# OF SHARES) ($) ($)
- ------------------ ---- ------- --------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard M.
Wardrop,
Jr. (1)
Chairman
and Chief 1997 700,000 1,050,000 2,340,000 250,000 1,050,000 63,970
Executive 1996 546,875 556,992 1,209,375 160,000 862,500 33,586
Officer 1995 443,480 436,065 415,312 120,000 -- 27,264
James L. 1997 333,333 500,000 449,219 60,000 500,000 37,617
Wareham (2) 1996 -- -- -- -- -- --
President 1995 -- -- -- -- -- --
Mark G.
Essig (3)
Executive
Vice Presi- 1997 338,333 338,333 151,750 20,000 -- 28,543
dent, 1996 307,500 303,410 342,656 44,000 315,000 16,319
Commercial 1995 286,668 281,875 207,656 60,000 -- 15,222
Richard E.
Newsted
Executive
Vice Presi-
dent,
Chief Fi- 1997 293,333 293,333 151,750 20,000 315,000 24,560
nancial Of- 1996 236,669 233,522 322,500 42,000 250,000 14,758
ficer 1995 219,501 215,831 138,437 40,000 -- 13,882
John G.
Hritz
Vice
President,
General 1997 246,667 246,667 151,750 20,000 270,000 20,635
Counsel and 1996 153,726 151,682 201,563 24,000 200,000 8,198
Secretary 1995 109,800 75,575 55,375 16,000 -- 5,835
</TABLE>
- --------
(1) Mr. Wardrop was elected Chairman on January 27, 1997, having previously
served as President.
(2) Mr. Wareham joined the Company effective March 1, 1997 and was elected
President on March 20, 1997.
(3) Mr. Essig voluntarily resigned as an officer and employee effective
January 10, 1998.
(4) Amounts shown in this column represent bonuses earned under the Company's
Annual Management Incentive Plan.
(5) The dollar value of each restricted stock award indicated in this column
is based on the average price of the Company's Common Stock on the date of
the award. The amounts shown do not include the value of restricted stock
awards representing a portion of the payouts under the Company's Long-Term
Performance Plan. All awards shown in this column were granted pursuant to
the Company's 1994 Stock Incentive Plan.
--------
Footnotes continue on following page.
7
<PAGE>
The aggregate number of shares of restricted stock held by the Named
Executives at December 31, 1997 and the dollar value thereof (based on the
closing price of the Company's Common Stock on December 31, 1997) were as
follows: for Mr. Wardrop--232,500, $4,112,344; for Mr. Wareham--25,000,
$442,188; for Mr. Essig--56,250, $994,922; for Mr. Newsted--39,500,
$698,656; and for Mr. Hritz--25,000, $442,188. Dividends are paid on shares
of restricted stock to the extent declared and paid on the Company's Common
Stock.
(6) The amounts shown in this column represent payouts under the Company's
Long-Term Performance Plan for the performance period ended December 31,
1997. As a result of his resignation effective January 10, 1998, Mr. Essig
ceased to be entitled to a payout under the plan in respect of that
performance period. One half of the amount shown for each Named Executive
was paid in cash (receipt of which may have been deferred pursuant to a
prior election by such Named Executive) and the balance in the form of an
award of shares of restricted stock valued on the basis of the market
price of the Company's Common Stock on the date of the approval of the
share issuance by the Compensation Committee. Those shares are in addition
to shares underlying restricted stock awards granted in 1997 pursuant to
the 1994 Stock Incentive Plan but are subject to all of the terms and
conditions of that plan and vest with respect to 20% of the shares on each
of the first through fifth anniversaries of the award.
(7) The amounts shown in this column for 1997 were derived as follows: (i) for
Mr. Wardrop, $7,770 was attributed to him for imputed income arising out
of a Company-provided life insurance plan, $56,000 represents the
Company's matching contributions for his account to the Company's thrift
plan and $200 was paid to him pursuant to a Company-provided medical plan;
(ii) for Mr. Wareham, $5,617 was attributed to him for imputed income
arising out of a Company-provided life insurance plan and $26,000
represents the Company's matching contribution for his account to the
Company's thrift plan; (iii) for Mr. Essig, $1,276 was attributed to him
for imputed income arising out of a Company-provided life insurance plan,
$27,067 represents the Company's matching contributions for his account to
the Company's thrift plan and $200 was paid to him pursuant to a Company-
provided medical plan; (iv) for Mr. Newsted, $1,093 was attributed to him
for income arising out of a Company-provided life insurance plan and
$23,467 represents the Company's matching contribution for his account to
the Company's thrift plan; (v) for Mr. Hritz, $902 was attributed to him
for imputed income arising out of a Company-provided life insurance plan
and $19,733 represents the Company's matching contribution for his account
to the Company's thrift plan. All premiums for Company-provided life
insurance are paid by the Company; income is imputed to an employee in an
amount equal to the portion of the premium applicable to coverage
exceeding $50,000.
STOCK OPTIONS
Pursuant to its Stock Incentive Plan (formerly known as the "1994 Stock
Incentive Plan"), the Company grants to its key employees, including its
executive officers, options to purchase shares of its Common Stock. The plan
does not provide for, and the Company does not grant, stock appreciation
rights.
8
<PAGE>
The following table sets forth information with respect to stock options
granted to the Named Executives in 1997:
STOCK OPTION GRANTS IN 1997(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL
TOTAL EXERCISE RATES OF STOCK
OPTIONS OPTIONS PRICE PRICE APPRECIATION
GRANTED GRANTED TO PER FOR OPTION TERM(3)
(# OF EMPLOYEES SHARE EXPIRATION -------------------
NAME SHARES) IN 1997 ($)(2) DATE 5% ($) 10% ($)
- ---- ------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
R.M. Wardrop, Jr.... 250,000 46.82 19.6063 (4) 3,082,554 7,811,834
J.L. Wareham........ 60,000 11.24 17.9688 3/20/07 678,024 1,718,253
M.G. Essig.......... 20,000 3.75 18.9688 5/15/07 238,584 604,626
R.E. Newsted........ 20,000 3.75 18.9688 5/15/07 238,584 604,626
J.G. Hritz.......... 20,000 3.75 18.9688 5/15/07 238,584 604,626
</TABLE>
- --------
(1) All data in this table have been adjusted to give effect to a two-for-one
stock split on November 17, 1997.
(2) All options provide for an exercise price equal to the fair market value
of the underlying shares as of the date of grant.
(3) The amounts shown in these columns represent the potential appreciation in
the value of the options over their stated term of ten years, based upon
assumed compounded rates of appreciation of 5% per year (equivalent to
162.89%) and 10% per year (equivalent to 259.37%), respectively. Those
amounts are not intended as forecasts of future appreciation, which is
dependent upon the actual increase, if any, in the market price of the
shares underlying the options, and there is no assurance that the amounts
of appreciation shown in these columns will be realized.
(4) Options with respect to 150,000 shares will expire January 16, 2007 and
options with respect to 100,000 shares will expire May 15, 2007.
The following table provides information as to options exercised by each of
the Named Executives in 1997 and the value of options held by them at year
end:
AGGREGATE OPTION EXERCISES IN 1997 AND
OPTION VALUES AT DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OPTIONS AT IN-THE-MONEY OPTIONS AT
OF SHARES DECEMBER 31, 1997 DECEMBER 31, 1997($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R.M. Wardrop, Jr. ...... -- -- 333,334 396,666 1,494,996 153,748
J.L. Wareham............ -- -- -- 60,000 -- --
M.G. Essig.............. 106,666 830,281 14,668 69,332 -- 76,874
R.E. Newsted............ -- -- 120,668 61,332 327,503 51,244
J.G. Hritz.............. 24,000 223,726 8,002 41,330 -- 20,494
</TABLE>
- --------
(1) All data in this table have been adjusted to give effect to a two-for-one
stock split on November 17, 1997.
(2) Calculated on the basis of the difference between the option exercise
price and the closing price of the Company's Common Stock on the New York
Stock Exchange on December 31, 1997 ($17.6875 per share).
LONG-TERM INCENTIVE AWARDS
In 1995, the Company adopted a Long-Term Performance Plan that is designed
to increase management's focus on the Company's longer term performance
relative to that of a group of six other steel producers--Bethlehem Steel
Corporation, Inland Steel Company, LTV Steel Company, Inc., National Steel
Corporation, Nucor Corporation and the U.S. Steel Group of USX Corporation--
and to further enhance the Company's ability to retain the services of its key
executives.
9
<PAGE>
Long-term performance is measured on the basis of what the Company deems to
be a critical indicator of profitability in the steel industry--operating
profit per ton of steel shipped--which, for purposes of the plan, is assessed
both cumulatively and annually over a performance period of three years, with
a new performance period commencing annually. The initial three-year
performance period ended December 31, 1997. In addition, upon inception of the
plan, the Board of Directors also provided for a one-time transitional two-
year performance period that ended December 31, 1996. Payouts in respect of
both performance periods are shown in the Summary Compensation Table on page
7.
Payouts under the plan are made shortly following the expiration of the
applicable performance period. No payout is made unless (i) the Company
reports net income for the last year of the performance period and (ii) the
Company's operating profit per ton ranks at least in the upper 50% of the
competitor group either on a cumulative basis over the entire performance
period or during the last year of the performance period. The payout to each
participating executive is determined by multiplying the executive's annual
base salary as of the end of the performance period by an award percentage. A
target percentage for each executive is established at or shortly following
the beginning of the performance period, subject to the approval of the
Compensation Committee. The actual award percentage may be higher or lower
than the target percentage, depending upon the Company's performance relative
to that of the competitor group during the performance period, and currently
ranges from a threshold of 15% of the target percentage to a maximum of 200%
of the target percentage. An executive would be entitled to the maximum payout
only if the Company's performance ranks first among the competitor group both
on a cumulative basis over the entire performance period and during the last
year thereof. No payment is made to an executive who has voluntarily resigned
or been discharged for cause prior to the scheduled date of payout. Upon
retirement, an executive is entitled under the Plan to receive, in lieu of any
amounts to which he or she otherwise might have been entitled in respect of
performance periods that commenced prior to his or her retirement but are
scheduled to expire subsequent thereto, a payment equal to his or her payout
for the performance period last ended prior to the date of his retirement. Up
to 50% of an executive's payout may be made in the form of an award of shares
of restricted stock, which vests with respect to 20% of the shares on each of
the first through fifth anniversaries of the award date.
The following table sets forth information with respect to potential payouts
to the Named Executives pursuant to awards granted to them in 1997 under the
Company's Long-Term Performance Plan:
LONG-TERM PERFORMANCE PLAN AWARDS IN 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES, PERFORMANCE ESTIMATED FUTURE PAYOUTS(3)
UNITS OR PERIOD UNTIL ---------------------------
OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(1) PAYOUT ($) ($) ($)
- ---- --------- --------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
R.M. Wardrop, Jr......... 75 1/1/97-12/31/99 78,750 525,000 1,050,000
J.L. Wareham............. 75 1/1/97-12/31/99 45,000 300,000 600,000
M.G. Essig(2)............ 50 1/1/97-12/31/99 -- -- --
R.E. Newsted............. 50 1/1/97-12/31/99 23,625 157,500 315,000
J.G. Hritz............... 50 1/1/97-12/31/99 20,250 135,000 270,000
</TABLE>
- --------
(1) The number set forth in this column for a Named Executive is the target
percentage specified by the Compensation Committee.
(2) Mr. Essig resigned voluntarily effective January 10, 1998. Accordingly, no
payment under the plan will be made to him.
(3) For purposes of estimating a Named Executive's future payout, the
applicable percentage has been multiplied against the Named Executive's
annual base salary as of December 31, 1997. A Named Executive's ultimate
payout will be determined by multiplying the applicable award percentage
against his or her actual base salary at December 31, 1999, which may not
be the same as that in effect at December 31, 1997.
10
<PAGE>
AGREEMENTS WITH PRINCIPAL OFFICERS
The Company's executive officers and certain other key managers are covered
by agreements that provide for severance payments and certain other benefits
in the event (a "Triggering Event") of a diminution of the covered employee's
salary or responsibility or a termination of the employee's employment other
than for cause (as defined in the agreements). The agreements generally
provide that upon the occurrence of a Triggering Event, an elected officer
(including each of the Named Executives) would be entitled to (i) a lump sum
severance payment equal to the salary to which that officer would otherwise
have been entitled for a period (the "severance payment period") of 36 months
(if the Triggering Event occurs within 24 months following the occurrence of a
Change in Control, as defined in the agreements) or 24 months (in the case of
a Triggering Event occurring other than within 24 months after a Change in
Control); (ii) a lump sum payment under the Company's Annual Management
Incentive Plan of a sum equal to the aggregate annual bonuses to which the
officer would have been entitled for the applicable severance payment period
based upon the bonus actually received by the employee under that plan for the
year preceding the Triggering Event; (iii) the immediate vesting and lapse of
all restrictions on shares that were the subject of restricted stock awards to
the employee under the Company's 1994 Stock Incentive Plan; (iv) the right,
for a period of three years following the Triggering Event, to exercise any
stock options that were outstanding at the date of the Triggering Event; and
(v) continuing coverage under the Company's benefit plans (including life,
health and other insurance benefits) for the duration of the applicable
severance payment period. For a limited number of executive officers and all
key managers other than executive officers, the applicable severance period is
18 months, whether or not the Triggering Event is preceded by a Change in
Control. The agreements with certain senior executive officers (including the
Named Executives) also provide that, upon either (i) an involuntary
termination of employment other than for cause (whether or not preceded by a
Change in Control) or (ii) a voluntary termination of employment for good
reason (as defined in the agreements) within 24 months following a Change in
Control, the officer would be entitled to a further lump sum payment equal to
(and in lieu of) all amounts to which that officer would otherwise have been
entitled under the Company's supplemental retirement plan (described below
under "Pension Plans"), such payment to be calculated as if he had become
fully vested under the plan and had retired at age 60 (or his then actual age,
if higher). If the Triggering Event is preceded by a Change in Control and any
portion of the required payments to an elected officer becomes subject to the
federal excise tax on so-called "parachute payments," the agreement with that
officer provides for "gross-up" so that the net amount retained by the
officer, after deduction of the excise tax and any applicable taxes on the
"gross-up" payment, is not reduced as a consequence of such excise tax. In
July 1997, the agreements with the Company's senior executive officers
(including the Named Executives) were amended to accord to each such officer
the right, exercisable only during a thirty-day period commencing (i)
immediately after the occurrence of a Change in Control in the case of the
Chief Executive Officer, and (ii) 180 days following the occurrence of a
Change in Control in the case of all other senior executive officers, to
voluntarily terminate his or her employment and obtain the same benefits as
would be available following a Triggering Event.
PENSION PLANS
The Company's executive officers are eligible for retirement benefits under
several plans: (i) a qualified defined benefit plan (the "Defined Benefit
Plan") that covers salaried employees whose employment by the Company began on
or before December 31, 1991 and provides benefits based on the employee's
final average earnings, (ii) a qualified cash balance plan (the "Cash Balance
Plan") that covers salaried employees whose employment by the Company began on
or after January 1, 1992 and accumulates credits based on the employee's
length of service and compensation throughout the period of service, and (iii)
a supplemental retirement plan (the "Supplemental Plan") that provides a "make
up" of qualified plan benefits that may be denied to participants in the
Defined Benefit Plan or the Cash Balance Plan because of limitations imposed
by the Internal Revenue Code of 1986, as amended, as well as supplemental
benefits for employees with a minimum of ten years of service, including at
least five years of service as a member of key management, subject to a limit
on the total benefits that may be paid to a covered participant equal to the
lesser of (i) 75% of the participant's
11
<PAGE>
highest annual base salary during a defined period preceding retirement or
(ii) 45% of the participant's average "covered compensation" (consisting of
base salary, bonuses under the Annual Management Incentive Plan and payouts
under the Long-Term Performance Plan) during that period.
ESTIMATED ANNUAL PENSION BENEFITS
Each of the Named Executives (other than Mr. Hritz) and all but three of the
Company's other executive officers, commenced employment subsequent to January
1, 1992. Officers employed subsequent to that date are covered only under the
Cash Balance Plan and the Supplemental Plan. The following table sets forth
the estimated combined annual retirement benefits (calculated on a straight
line annuity basis) that may become payable to a covered participant in the
higher compensation classifications, including the Named Executives, under the
Cash Balance Plan and the Supplemental Plan, assuming satisfaction of the
requisite service requirements at the time of retirement:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM BENEFIT ESTIMATED MAXIMUM BENEFIT
BASED ON BASED ON
AVERAGE BASE SALARY AVERAGE COVERED COMPENSATION
----------------------------- ----------------------------------------
AVERAGE AVERAGE
BASE ESTIMATED COVERED ESTIMATED
SALARY ($) BENEFIT ($) COMPENSATION ($) BENEFIT ($)
---------- ----------- ---------------- -----------
<S> <C> <C> <C>
200,000 150,000 600,000 270,000
300,000 225,000 800,000 360,000
400,000 300,000 1,000,000 450,000
500,000 375,000 1,200,000 540,000
600,000 450,000 1,400,000 630,000
700,000 525,000 1,600,000 720,000
800,000 600,000 1,800,000 810,000
900,000 675,000 2,000,000 900,000
1,000,000 750,000 2,200,000 990,000
</TABLE>
It is anticipated that, so long as annual bonuses under the Management
Incentive Plan and payouts under the Long-Term Performance Plan continue to
represent the principal contributants to the covered compensation of the
Company's executive officers, benefits to those officers, including those of
the Named Executives covered under the Cash Balance Plan, will be limited to
75% of his highest annual base salary during the period of his employment. The
following table sets forth, as of December 31, 1997, the number of years of
creditable service and the applicable covered compensation and base salary for
pension benefit calculation purposes for each of the Named Executives covered
under the Cash Balance Plan:
<TABLE>
<CAPTION>
YEARS OF COVERED BASE
NAME SERVICE COMPENSATION ($) SALARY ($)
---- -------- ---------------- ----------
<S> <C> <C> <C>
R.M. Wardrop, Jr. .................... 5.5 1,881,971 700,000
J.L. Wareham.......................... 0.8 355,555 400,000
M.G. Essig(1)......................... 5.4 723,706 350,000
R.E. Newsted.......................... 3.3 685,730 315,000
</TABLE>
--------
(1) Under the terms of the Cash Balance Plan, as a result of his
voluntary resignation as an employee of the Company effective January
10, 1998, Mr. Essig will be entitled at age 65 to receive $18,986.24
plus accrued interest thereon from January 10, 1998.
12
<PAGE>
Four of the Company's executive officers (including Mr. Hritz) commenced
employment with the Company prior to January 1, 1992. Those officers are
covered under the Defined Benefit Plan and the Supplemental Plan. The
following table sets forth, as of December 31, 1997, the estimated combined
annual retirement benefits (calculated on a straight line annuity basis and
before a required deduction of a portion of applicable Social Security
benefits) that may become payable to a covered participant in the higher
compensation classifications under the Defined Benefit Plan and the
Supplemental Plan:
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
COVERED ----------------------------------------------------------------------
COMPENSATION 15 20 30 40
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 400,000 $180,000 $180,000 $189,000 $252,000
$ 500,000 $225,000 $225,000 $236,250 $315,000
$ 600,000 $270,000 $270,000 $283,500 $378,000
$ 700,000 $315,000 $315,000 $330,750 $441,000
$ 800,000 $360,000 $360,000 $378,000 $504,000
$ 900,000 $405,000 $405,000 $425,250 $567,000
$1,000,000 $450,000 $450,000 $472,500 $630,000
$1,100,000 $495,000 $495,000 $519,750 $693,000
$1,200,000 $540,000 $540,000 $567,000 $756,000
</TABLE>
To the extent that a participant's covered compensation substantially exceeds
his base salary, annual benefits will be limited to 75% of his highest annual
base salary during the period of his employment and, therefore, will be less
than the amounts shown in the foregoing table.
Under the Defined Benefit Plan, a participant's average pensionable earnings
are determined on the basis of the highest amounts paid to that participant in
any 60 consecutive months of service during his or her last 120 consecutive
months of service. Mr. Hritz has 8.3 years of credited service under the
Defined Benefit Plan. If his employment were to continue until retirement at
age 65 at his 1997 rate of remuneration, he would be entitled to receive an
annual pension of $202,500.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICIES
The functions of the Compensation Committee (the "Committee") are to review
and recommend to the Board of Directors the compensation of the Company's
executive officers, to review the duties and responsibilities of those
officers, to review the Company's overall compensation and personnel policies,
to administer the Company's 1994 Stock Incentive Plan, Long-Term Performance
Plan and certain other employee benefit plans, and to review and make
recommendations to the Board of Directors with respect to the Company's
incentive compensation plans, pension and savings plans and employee
retirement policies, benefits and plans. With respect to the Company's
executive compensation arrangements, the Committee's goal is to establish a
compensation program that strengthens the commonality of interest between
management and the Company's stockholders, links compensation with Company
performance and enables the Company to attract and retain executives of high
caliber and ability.
EXECUTIVE OFFICER COMPENSATION COMPONENTS
The key elements of the Company's executive officer compensation program are
base salary, bonus awards under the Annual Management Incentive Plan and long-
term incentives consisting of awards under the Long- Term Performance Plan and
awards of stock options and restricted stock under the 1994 Stock Incentive
Plan. Each of these elements is addressed separately below.
BASE SALARY
Salary levels are assigned to positions within competitive standards based
on job responsibilities and a review of the salary levels for comparable
positions at other major corporations, as disclosed in compensation
13
<PAGE>
surveys conducted by independent consulting firms. Corporations for which
compensation data are included in these surveys include the five largest
publicly owned integrated steel companies in the United States, as well as
other industrial companies with operations of comparable size and scope to
those of the Company.
Increases in base salary for an executive officer are based on individual
performance, Company performance and market compensation trends. The Committee
does not rely on any specific formula nor does it assign specific weights to
the various factors used in determining base salaries. Strong individual
performance and strong Company performance would generally result in above-
average increases. Below-market increases or no increases would generally
occur in years when individual performance and Company performance are below
expectations.
Each of the Named Executives (other than Mr. Wareham) received an increase
in base salary during 1997 that was based upon competitive reviews made by an
independent compensation consultant, individual contributions made by the
Named Executives and the Company's continuing strong financial performance.
Mr. Wareham's employment commenced on March 1, 1997, and, therefore, his base
salary remained unchanged for the entire year.
ANNUAL MANAGEMENT INCENTIVE PLAN
The Company's Annual Management Incentive Plan is designed to motivate
executive officers to focus on both financial and non-financial goals that
directly impact shareholders. A bonus award under the plan is expressed as a
percentage of total base compensation for the year. Depending upon the extent
to which prescribed targets are achieved or exceeded, that percentage may vary
from approximately 50% of an executive's base compensation at target levels to
as much as 150% of base compensation for the Chairman and Chief Executive
Officer and the President or as much as 100% of base compensation in the case
of other executive officers. If the minimum specified target is not achieved,
no bonus is payable.
Because the Company's performance for 1997 exceeded each of the financial
and non-financial targets, bonus awards for 1997 as a percentage of base
compensation were 150% for each of Messrs. Wardrop and Wareham and 100% for
each of the other Named Executives.
LONG-TERM PERFORMANCE PLAN
The Company's Long-Term Performance Plan, adopted in 1995 and amended in
1996, is designed to increase management's focus on the Company's performance
relative to that of its principal competitors over a multi-year period and to
further enhance the Company's ability to retain the services of its key
executives.
Because the Company's operating profit per ton substantially exceeded that
of all other companies in the competitor group during 1995, 1996 and 1997,
each of the participating executives (including each of the Named Executives,
other than Mr. Essig (who resigned voluntarily effective January 10, 1998 and,
therefore, was ineligible to receive a payout), received the maximum payout in
respect of the performance period that ended December 31, 1997 (which ranged
from 100% of base salary at December 31, 1997 in the case of Messrs. Newsted
and Hritz to 150% of base salary at December 31, 1997 in the case of Messrs.
Wardrop and Wareham).
STOCK INCENTIVE PLAN
Grants of stock options and restricted stock awards under the Company's
Stock Incentive Plan are designed to link executive compensation to
appreciation in the market price of the Company's Common Stock and to
encourage executives to remain in the employ of the Company. Grants of options
and restricted stock awards were made during 1997 to each of the executives
named in the Summary Compensation Table based upon the recommendations of an
independent compensation consultant. These grants are reflected in the Summary
Compensation Table.
14
<PAGE>
COMPENSATION OF CHIEF EXECUTIVE OFFICER
During 1997 Mr. Wardrop's annual base salary was increased from $575,000 to
$700,000. He also received an annual bonus of $1,050,000 for 1997 pursuant to
the Company's Annual Management Incentive Plan based solely upon corporate
performance for the year. In addition, pursuant to the 1994 Stock Incentive
Plan, during 1997 Mr. Wardrop was granted options with respect to 250,000
shares and restricted stock awards with respect to 60,000 shares. He also
received an award under the Long-Term Performance Plan providing a target
opportunity equal to 75% of his base salary as of the end of a three-year
performance period ending December 31, 1997. Each of these compensation
components was based upon the recommendation of an independent compensation
consultant as well as the Committee's recognition of Mr. Wardrop's election as
Chairman and individual contribution to the Company's exceptional performance
during 1997.
POLICY WITH RESPECT TO DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code (the "Code") generally limits to
$1,000,000 per covered executive the deductibility for federal income tax
purposes of the annual compensation paid to a company's chief executive
officer and each of its other four most highly compensated executive officers.
Under the provisions of Section 162(m), there may be excluded from the
$1,000,000 limit compensation that is determined on the basis of certain
performance goals under plans that meet certain specific criteria.
Compensation attributable to the exercise of options granted under the Stock
Incentive Plan is excluded from the $1,000,000 limit as a consequence of
certain amendments to that plan that were approved by stockholders in 1996.
Bonuses paid under the Annual Management Incentive Plan have been excluded
from the $1,000,000 limit under applicable transition rules that cease to be
available following the 1998 Annual Meeting of Stockholders. Payouts under the
Long-Term Performance Plan are not currently eligible for exclusion from the
$1,000,000 limit under the provisions of Section 162(m). However, as a result
of compensation deferral agreements between the Company and its principal
executive officers, a substantial portion of the payouts to those officers who
are covered by the provisions of Section 162(m) has not been includible for
federal income tax purposes in their compensation, or in the Company's
compensation expense, in the year of payout. The Committee has determined that
it is in the best interests of the Company and its stockholders to assure that
bonuses under the Annual Management Incentive Plan and payouts under the Long-
Term Performance Plan may be excluded from the $1,000,000 limit on
deductibility pursuant to Section 162(m) and, accordingly, has recommended to
the Board of Directors that the provisions of those plans be amended to meet
the applicable requirements of Section 162(m) and submitted to stockholders
for their approval at the 1998 Annual Meeting.
The Compensation Committee
Robert E. Northam, Chairman
Allen Born
Dr. Bonnie Guiton Hill
Lawrence A. Leser
COMPENSATION COMMITTEE INTERLOCKS
The members of the Compensation Committee are not employees of the Company
and do not participate in any of the Company's management compensation
programs. No member of the Committee is an executive officer of a company of
which an executive officer of the Company serves as a director.
15
<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock for the period from March 30, 1994 (the day on which
the Company's shares were first publicly traded) through December 31, 1997
with the cumulative total return for the same period of (i) the Standard &
Poor's 500 Stock Index and (ii) a peer group consisting of the five largest
publicly owned integrated steel companies in the United States (Bethlehem
Steel Corporation, Inland Steel Industries, Inc., LTV Corporation, National
Steel Corporation and the U.S. Steel Group of USX Corporation). These
comparisons assume an investment of $100 at the commencement of the period and
reinvestment of dividends. With respect to companies in the peer group, the
returns of each company have been weighted to reflect its stock market
capitalization relative to that of the other companies in the group.
CUMULATIVE TOTAL RETURNS
MARCH 30, 1994 THROUGH DECEMBER 31, 1997
(VALUE OF $100 INVESTED ON MARCH 30, 1994)
[GRAPH]
LEGEND
<TABLE>
<CAPTION>
March 30, December 31, December 31, December 31, December 31,
Symbol Description 1994 1994 1995 1996 1997
- ------ ----------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
AK STEEL $100.00 $130.85 $146.43 $172.30 $157.09
PEER GROUP $100.00 $100.88 $ 82.74 $ 71.35 $ 68.74
S&P 500 $100.00 $106.99 $143.99 $177.12 $232.06
</TABLE>
16
<PAGE>
INCREASE OF AUTHORIZED COMMON STOCK
The Company's Certificate of Incorporation currently authorizes the issuance
of up to 75,000,000 shares of Common Stock. The number of authorized shares
was last fixed at the time of the Company's initial public offering in the
Spring of 1994. After consummation of the offering, approximately 24,000,000
shares were outstanding, leaving a reserve of more than 50,000,000 shares
available for future issuance. During the four years since that time, however,
the Company has issued a substantial number of additional shares, including
approximately 4,100,000 shares that were issued upon redemption of its
previously outstanding 7% Convertible Preferred Stock in October 1997 and
approximately 30,600,000 shares that were issued to implement a two-for-one
split of its outstanding Common Stock in November 1997. As a result, at March
31, 1998, a total of 59,316,068 shares were outstanding and only 15,683,932
shares remained available for future issuance, of which approximately
2,106,654 shares were reserved for the exercise of outstanding stock options.
The Board of Directors believes that the limited number of authorized shares
presently available for future issuance unduly restricts its flexibility to
respond to future growth in the Company's business and capital requirements
and that it would be in the best interests of the Company and its shareholders
to increase the amount of authorized Common Stock to 200,000,000 shares. The
Board has no current plans, nor has management made any proposals or
recommendations, for the issuance of a significant number of additional
shares. However, the Board believes it is important to have available a
substantial reserve of authorized but unissued shares for future issuance for
various possible purposes, including acquisitions, the raising of additional
equity capital, stock dividends and stock splits.
Under the laws of Delaware (in which the Company is incorporated), an
increase in the number of authorized shares of Common Stock requires amendment
of the Company's Certificate of Incorporation. Such an amendment requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present and voting at a duly convened meeting. Accordingly, the Board of
Directors is seeking shareholder approval at the Annual Meeting of a proposed
amendment to the Company's Certificate of Incorporation to increase the
authorized Common Stock to an aggregate of 200,000,000 shares. If the proposed
amendment is approved, it will become effective upon the filing with the
Secretary of State of Delaware, promptly following the Annual Meeting, of a
certificate of amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED INCREASE IN THE AUTHORIZED COMMON STOCK FROM 75,000,000 TO
200,000,000 SHARES.
AMENDMENT OF STOCK INCENTIVE PLAN
INTRODUCTION
The Company's Stock Incentive Plan (the "Stock Plan"), as previously amended
and approved by stockholders on May 15, 1996, currently permits the grant,
from time to time until December 31, 2003, of nonqualified stock options and
restricted stock awards to directors, executive officers and other key
employees of the Company. Under the terms of the Stock Plan, options and
restricted stock awards may be granted with respect to an aggregate maximum of
7,800,000 shares (as adjusted for the two-for-one stock split in November
1997). As of March 13, 1998, options were outstanding with respect to
2,150,320 shares, options with respect to 2,569,014 shares had previously been
exercised and there were outstanding 1,065,817 shares that were the subject of
restricted stock awards. Accordingly, at that date there remained available
for future grants a total of 2,014,849 shares.
On March 19, 1998, the Company's Board of Directors, subject to and
effective upon receipt of stockholder approval at the 1998 Annual Meeting,
adopted amendments to the Stock Plan to increase the maximum number of shares
reserved for issuance under the Stock Plan to 11,000,000 shares and to extend
the expiration of the
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period during which options and restricted stock awards may be granted under
the Stock Plan from December 31, 2003 to December 31, 2007. In addition, the
Board authorized the inclusion in the Stock Plan of provisions that would
permit the Compensation Committee to establish rules and procedures permitting
persons eligible to receive options and restricted stock awards to defer
recognition for federal income tax purposes of gains realized upon the
exercise of such options or the lapse of restrictions with respect to such
restricted stock awards.
The Board of Directors believes that stock options and restricted stock
awards have been, and will continue to be, an important element in the
Company's management compensation program. In addition to assisting the
Company in its efforts to attract and retain the services of key management
personnel, grants of options and restricted stock awards serve to more
effectively link executive compensation to stockholder returns through stock
price performance and provide recipients with an additional incentive for
outstanding performance. The Board of Directors believes that the increase in
the total number of shares available for option grants and restricted stock
awards and the extension for a further four years of the period during which
options and restricted stock awards may be granted under the Stock Plan, as
well as the authorization of procedures to permit deferral elections, are
appropriate and will enable the Company to continue to avail itself of the
benefits of the Stock Plan.
SUMMARY OF THE STOCK PLAN
The following is a summary of the material features of the Stock Plan, as
restated to reflect the foregoing amendments. The summary does not purport to
be complete and is qualified in its entirety by reference to the full text of
the amended and restated Stock Plan, a copy of which is appended to this Proxy
Statement as Annex A.
ADMINISTRATION. The Stock Plan will continue to be administered by the
Compensation Committee of the Board of Directors the members of which must be
(i) "non-employee directors" within the meaning of and to the extent required
by Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (ii) "outside directors" within the meaning of Section
162(m) of the Code. Among other functions, the Compensation Committee has
authority to determine the allocation of the shares subject to the Stock Plan
between options and restricted stock awards, the type of awards (options
and/or restricted stock awards), the number of shares subject to an award
(except for awards to directors, the size and type of which are specified in
the Stock Plan itself and are subject to certain conditions) and to determine
the terms and conditions of awards. The Compensation Committee also has the
authority to construe and interpret the Stock Plan, establish, amend or waive
rules and regulations for its administration, and amend the terms and
conditions of any outstanding award (subject to the conditions provided in the
Stock Plan).
ELIGIBILITY. Non-employee directors, officers, and employees (other than
officers) who have been recommended by the Chairman of the Board are eligible
to participate in the Stock Plan.
NUMBER OF SHARES. Awards under the Stock Plan may be made with respect to an
aggregate of 11,000,000 shares. No person may be granted awards under the
Stock Plan with respect to more than 600,000 shares in any calendar year. The
number of shares covered by the Stock Plan, including shares subject to
outstanding options under the Stock Plan, will adjust automatically for any
stock dividend or split, recapitalization, reclassification, merger,
consolidation, combination or exchange of shares, or similar corporate change.
DESCRIPTION OF AWARDS
Options. Options granted under the Stock Plan are "Nonqualified Options,"
i.e., options that do not qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code. Each option grant must be
evidenced by a written agreement specifying the terms of such grant, including
the number of shares covered, the exercise price, the first date the option
may be exercised, any restriction on the transferability of shares obtained
upon exercise of the option and the duration of the option. However, no option
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may be exercisable later than the tenth anniversary of the date of its grant.
The purchase price for each share covered by an option is determined by the
Compensation Committee at the date of grant but may not be less than 100% of
the fair market value of the shares on the date of grant. Payment of the
exercise price may be made with cash, with previously owned shares or by a
combination of these methods. The Compensation Committee also may allow the
cashless exercise of an option, or other means of exercise that the
Compensation Committee determines to be consistent with the Stock Plan's
purpose and applicable law.
Restricted Stock. The Stock Plan authorizes the Compensation Committee to
grant awards of restricted stock to individuals eligible to participate in the
Stock Plan. Each award of restricted stock must be evidenced by a written
agreement that specifies the period of restriction, the number of shares
subject to the award and such other provisions as may be determined by the
Compensation Committee. The restrictions with respect to shares of restricted
stock will lapse under the schedules set forth in the Stock Plan and as
summarized below.
LIMITS ON TRANSFERABILITY AND TERMINATION OF EMPLOYMENT
Options. Except as provided in the Stock Plan, no option granted under the
Stock Plan may be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. Subject to the terms of the Stock Plan and the discretion of the
Compensation Committee, an option may be exercised only while the holder is
employed by the Company. However, upon a holder's death, disability,
retirement or involuntary termination for reasons other than cause, his or her
outstanding options will be immediately exercisable and will remain
exercisable for the periods set forth in the Stock Plan. Upon voluntary
termination or involuntary termination for cause, an option holder may
exercise options on or before his or her last day worked.
Restricted Stock. Shares underlying a restricted stock award may not be
sold, transferred, assigned, pledged, encumbered or otherwise alienated or
hypothecated until the period of restriction has lapsed. Restrictions shall
lapse, with respect to shares underlying a restricted stock award to an
employee, with respect to 25% of such shares on each of the second through
fifth anniversaries of the award, and with respect to shares underlying a
restricted Stock award to a director, upon completion of his or her full
tenure on the Board of Directors or upon the date of his or her mandatory
retirement from the Board by reason of age. In the case of retirement by all
other holders of restricted stock, the Compensation Committee may in its sole
discretion elect to waive all or any portion of the restrictions then
remaining. All outstanding restrictions on shares lapse in the case of death
or disability of the holder. During the period of restriction, a holder of
restricted stock may exercise full voting rights with respect to the
underlying shares and is entitled to all dividends and other distributions
paid on those shares. Upon the lapse of the applicable period of restriction,
the shares vest in the holder.
CHANGE IN CONTROL. Upon a Change in Control (as defined in the Stock Plan)
of the Company, all options, if not then exercisable, become immediately
exercisable and any restrictions on the transfer of shares of restricted stock
immediately lapse. However, if the Company's Common Stock is no longer traded
on a national securities exchange at the date of the Change in Control, a
holder of options and/or shares of restricted stock has the right to require
the Company to make a cash payment to such holder in exchange for the
surrender of such options and/or restricted stock.
AMENDMENT AND DISCONTINUANCE. The Stock Plan may be amended, altered or
discontinued by the Board of Directors, but, except as specifically provided
in the Stock Plan, no amendment, alteration or discontinuance may be made that
would in any manner adversely affect any outstanding option or restricted
stock award under the Stock Plan without the written consent of the holder.
Except as expressly provided in the Stock Plan, the Stock Plan may not be
amended without stockholder approval to the extent such approval is required
by law or the rules of any securities exchange on which the Company's Common
Stock is then listed.
FEDERAL INCOME TAX CONSEQUENCES.
The following discussion is intended only as a brief discussion of the
federal income tax rules relevant to options and restricted stock awards.
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Nonqualified Stock Options. Upon the grant of an option, the recipient will
not recognize any taxable income and the Company will not be required to
record any compensation expense. Upon the exercise of such an option, the
excess of the fair market value of the shares acquired on the exercise of the
option over the purchase price (the "spread") will constitute compensation
taxable to the holder as ordinary income. In determining the amount of the
spread, the fair market value of the stock on the date of exercise is used,
except that in the case of a holder subject to the six month short-swing
profit recovery provisions of Section 16(b) of the Exchange Act (generally
executive officers), the fair market value will generally be determined at the
expiration of the six-month period, unless the holder elects to be taxed based
on the fair market value at the date of exercise. Any such election (a
"Section 83(b) election") must be made and filed with the Internal Revenue
Service within 30 days after exercise in accordance with the regulations under
Section 83(b) of the Code. The Company will generally be entitled to a
deduction for federal income tax purposes in an amount equal to the
compensation taxable to the holder as a result of exercise of the option in
the Company's taxable year in which the amount is included as income to the
holder.
Restricted Stock. A person who is granted a restricted stock award may make
a Section 83(b) election to have the grant taxed as compensation income at the
date of receipt, with the result that any future appreciation (or
depreciation) in the value of the shares will be taxed as capital gain (or
loss) upon a subsequent sale of the shares. However, if the recipient does not
make a Section 83(b) election, the grant will be taxed as ordinary income at
the full fair market value of the shares on the date that the restrictions
imposed on the shares lapse. Unless a holder makes a Section 83(b) election,
any dividends paid on shares subject to restrictions are ordinary income to
the holder and compensation expense to the Company. The Company is generally
entitled to a tax deduction for any compensation income taxed to the holder,
subject to the provisions of Section 162(m) of the Code.
Deferral Provisions. The Stock Plan contains provisions that would allow the
Compensation Committee to establish rules and procedures permitting
Participants to elect to defer gains realized upon the exercise of Options or
upon the lapse of restrictions with respect to Restricted Stock. Any such
deferral elections will be in compliance with applicable tax law.
PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any persons or group of persons under the Stock
Plan in future years. Such determinations are subject to the discretion of the
Compensation Committee. However, grants of options and restricted stock awards
to the Named Executives for each of the past three years are set forth in
tables under "Executive Compensation" beginning on page 7 of this Proxy
Statement.
SHAREHOLDER VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares present and voting at the
Annual Meeting is required to approve the amendment of the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDED AND RESTATED STOCK INCENTIVE PLAN.
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APPROVAL OF ANNUAL MANAGEMENT INCENTIVE PLAN
INTRODUCTION
The Company's Annual Management Incentive Plan (the "Incentive Plan") was
originally adopted in January 1993. As noted in the Compensation Committee's
Report on Executive Compensation beginning on page 13 of this Proxy Statement,
Section 162(m) of the Code generally limits to $1,000,000 per covered
executive the deductibility for federal income tax purposes of the annual
compensation paid to a company's chief executive officer and each of its other
four most highly compensated executive officers ("Covered Executives"). Under
applicable transition rules, because the Incentive Plan was adopted prior to
the initial public offering of the Company's Common Stock in March 1994,
bonuses paid to date under the Incentive Plan have not been subject to the
limitations on deductibility imposed by Section 162(m). However, those
transition rules will cease to be applicable to the Incentive Plan following
the 1998 Annual Meeting.
To assure that bonus payments under the Incentive Plan will qualify as
"performance-based compensation" under Section 162(m) and, to the extent paid
to Covered Executives, may be excluded from the $1,000,000 limit on
deductibility imposed by Section 162(m), the Board of Directors on March 19,
1998 adopted certain amendments to the Incentive Plan and directed that the
Incentive Plan, as restated to reflect those amendments, be submitted to
stockholders for approval at the 1998 Annual Meeting.
SUMMARY OF THE INCENTIVE PLAN
Set forth below is a summary of certain important features of the Incentive
Plan, as so amended and restated, including, among other things, the
performance measures, eligibility requirements and limitations on bonus awards
contained therein. The summary is qualified in its entirety by reference to
the full text of the amended and restated Incentive Plan, a copy of which is
appended to this Proxy Statement as Annex B. All capitalized terms not defined
in the summary are defined in the text of the Incentive Plan.
PURPOSE. The purpose of the Incentive Plan is to increase management's focus
on specific performance goals for the Company with respect to safety, quality
and net income. Each calendar year is a Performance Period under the Incentive
Plan.
ADMINISTRATION. The Incentive Plan will continue to be administered by the
Compensation Committee of the Board of Directors, all of the members of which
must be "outside directors" within the meaning of Section 162(m). The Chairman
of the Board or the Company's Executive Management Committee designates who
will participate in the Incentive Plan for each Performance Period, subject to
approval of the Compensation Committee. The Compensation Committee also
establishes and administers the performance goals which must be achieved for a
Plan Member to receive a Performance Award, and certifies in writing that the
criteria to receive a Performance Award have been satisfied. The Compensation
Committee or the Executive Management Committee may remove any Plan Member
from further participation in the Incentive Plan. The Compensation Committee
and the Board of Directors have the authority to amend or terminate the
Incentive Plan at any time.
ELIGIBILITY. All elected officers and certain other management employees of
the Company are eligible to be selected for participation in the Incentive
Plan.
PERFORMANCE AWARDS. The Compensation Committee assigns each Plan Member who
is a Covered Executive a Target Percentage and a Maximum Percentage. The
Executive Management Committee assigns each other Plan Member a Target
Percentage and a Maximum Percentage. A Plan Member's Target Percentage is
multiplied by the Plan Member's annual base compensation for the Performance
Period to arrive at the Plan Member's target award if the Company achieves
certain goals with respect to safety, quality and net income that are
established by the Compensation Committee and approved by the Board of
Directors. A Plan Member's Maximum Percentage, which is two times his or her
Target Percentage, is multiplied by his or her annual base compensation to
determine his or her maximum award if the Company, in addition to meeting the
goals for safety and quality, exceeds the established net income goal by a
certain level as determined by the Compensation
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Committee. If only the goal for safety is attained for a Performance Period,
the Compensation Committee nevertheless would grant a Performance Award for
safety only. The Compensation Committee may also identify one or more Covered
Executives to participate in a Special Award. If an individual is selected to
participate in the Special Award grant, the Compensation Committee establishes
an objective formula based on net income that, if attained, would entitle such
individual to a Special Award. At the conclusion of each Performance Period,
the Compensation Committee, with respect to Covered Executives, and the
Executive Management Committee, with respect to other Plan Members, determines
the extent to which the performance goals have been met. The Compensation
Committee and the Executive Management Committee, respectively, will then
determine the target award or maximum award, and any Special Award, earned by
each Plan Member. A Plan Member's Performance Award for a Performance Period
consists of the target award or maximum award, as the case may be, plus any
Special Award, to which he or she may be entitled in respect of that
Performance Period. No Performance Award may be paid to a Covered Executive
except upon written certification by the Compensation Committee that the
applicable performance goals have been satisfied. No Covered Executive may
receive a Performance Award in excess of $3,000,000. Each Performance Award is
paid in cash in a single lump-sum.
DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION. If during a
calendar year a Plan Member dies, becomes disabled, retires, or is
involuntarily terminated for reasons other than cause, the Plan Member (or the
estate of such Plan Member in the case of death) is entitled under the
Incentive Plan to the prorated amount of his or her Performance Award based on
his or her period of participation during the year.
LEAVE OF ABSENCE. If during a calendar year a Plan Member is absent from
employment with the Company for a period of more than ninety (90) consecutive
calendar days for any reason, the Plan Member's participation in the Incentive
Plan is suspended for the period exceeding ninety (90) days, and the Plan
Member is entitled under the Incentive Plan to the prorated amount of his or
her Performance Award based on his or her period of participation during the
year.
EVENTS OF FORFEITURE. If the Company has no net income for book purposes for
any Performance Period, no Performance Award will be paid with respect to the
Performance Period. If a Plan Member is terminated for cause, no Performance
Award to that Plan Member shall be paid under the Incentive Plan. A Plan
Member who voluntarily terminates his or her employment with the Company prior
to any Performance Award Payment Date shall forfeit all rights to any payment
that is or may be due under the Incentive Plan. If the Incentive Plan is
terminated, no Performance Awards shall be paid to any Plan Member on or after
the date of such action, unless the Compensation Committee expressly provides
otherwise.
FEDERAL INCOME TAX CONSEQUENCES
A Plan Member who receives a Performance Award must include the amount of
the Performance Award in his or her gross income in the year of receipt. The
Company will withhold appropriate payroll or other taxes from a Performance
Award.
PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any persons or group of persons under the
Incentive Plan in future years. Such determinations are subject to future
performance of the Company. However, the amounts previously paid under the
Incentive Plan to those officers who were deemed Covered Executives as of
December 31, 1997 are set forth in the bonus column of the Summary
Compensation Table on page 7 of this Proxy Statement.
STOCKHOLDER VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares present and voting at the
Annual Meeting is required to approve the Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDED AND RESTATED ANNUAL MANAGEMENT INCENTIVE PLAN.
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APPROVAL OF LONG-TERM PERFORMANCE PLAN
INTRODUCTION
The Company's Long-Term Performance Plan (the "Long-Term Plan") was
originally adopted by the Board of Directors in 1995 but has not previously
been submitted to stockholders for approval. Accordingly, payouts under the
Long-Term Plan are not currently eligible for exclusion from the $1,000,000
limitation on deductibility imposed by Section 162(m) of the Code with respect
to Covered Executives. However, as a result of compensation deferral
agreements between the Company and its principal executive officers, a
substantial portion of the payouts to those officers who are Covered
Executives has not been includible for federal income tax purposes in their
compensation, or in the Company's compensation expense, in the year of payout.
The Board of Directors, upon the recommendation of the Compensation
Committee, has determined that, notwithstanding the existence of such
compensation deferral agreements, it is appropriate and in the best interests
of the Company and its stockholders that payouts under the Long-Term Plan
qualify as "performance-based compensation" under Section 162(m) and that the
Long-Term Plan be submitted to stockholders for approval to assure that such
payouts may be excluded from the $1,000,000 limitation on deductibility
imposed by Section 162(m). Accordingly, on March 19, 1998 the Board of
Directors adopted certain amendments to the Long-Term Plan to assure its
conformity to the requirements of Section 162(m) and directed that the Long-
Term Plan, as restated to reflect those amendments, be submitted to
stockholders for approval at the 1998 Annual Meeting.
SUMMARY OF THE LONG-TERM PLAN
Set forth below is a summary of certain important features of the Long-Term
Plan, as so amended and restated, including, among other things, the
performance measures, eligibility requirements and limitations on awards
contained therein. The summary is qualified in its entirety by reference to
the full text of the Long-Term Plan, a copy of which is appended to this Proxy
Statement as Annex C. All capitalized terms not defined in the summary are
defined in the text of the Long-Term Plan.
PURPOSE. The purpose of the Long-Term Plan is to increase management's focus
on the Company's long-term performance relative to that of its principal
competitors in the carbon flat rolled steel industry, to reward certain
employees for enhancing the profitability of the Company over extended periods
of time, and to further enhance the Company's ability to retain the services
of key executives. Each Performance Period under the Long-Term Plan consists
of three consecutive calendar years.
ADMINISTRATION. The Long-Term Plan is administered by the Compensation
Committee of the Board of Directors, all of the members of which are "outside
directors" within the meaning of Section 162(m). The Chairman of the Board,
subject to the approval of the Compensation Committee, designates the Covered
Employees who will participate in the Long-Term Plan in each Performance
Period. The Compensation Committee also approves other Plan Members who are
selected by the Company's Executive Management Committee, establishes and
administers the performance goals that must be achieved for Plan Members to
receive Performance Awards, certifies in writing that the criteria to receive
a Performance Award have been satisfied, determines the terms of the
Performance Awards and may remove any Plan Member from further participation
in the Long-Term Plan. The Compensation Committee and the Board of Directors
have the authority to amend or terminate the Long-Term Plan at any time.
ELIGIBILITY. All elected officers and certain other management employees of
the Company are eligible to be selected for participation in the Long-Term
Plan.
PERFORMANCE AWARDS. The Compensation Committee assigns each Plan Member who
is a Covered Employee a Target Percentage. The Executive Management Committee
assigns each other Plan Member a Target Percentage. A Plan Member's Target
Percentage is multiplied by his or her annual base salary for the final year
of the Performance Period to arrive at the Plan Member's Target Amount. The
Plan Member will be entitled to a certain percentage of his Target Amount
(which may exceed 100%) if certain performance goals are attained by the
Company. The performance goals are objective and based on a comparison of the
Company's operating profit
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per ton of flat rolled carbon steel shipped (excluding special and unusual
items) as compared to the operating profit per ton shipped (excluding special
and unusual items) of the Company's principal competitors. At the conclusion
of a particular Performance Period, the Compensation Committee, with respect
to Covered Employees, and the Executive Management Committee, with respect to
other Plan Members, determines the extent to which the performance goals have
been met. The Compensation Committee and the Executive Management Committee,
respectively, then determine the applicable percentage to be applied, and
applies such percentage, to the Target Amount to determine the Performance
Award to be received by the Plan Member. However, no payout may be made under
the Long-Term Plan to a Covered Employee except upon written certification by
the Compensation Committee that the applicable performance goals have been
satisfied. No Covered Employee may receive a Performance Award under the Long-
Term Plan in excess of $3,000,000.
Performance Awards may be paid in cash or in a combination of cash and
shares of restricted stock, as determined by the Compensation Committee;
provided, however, that no more than 50% of a Performance Award may be paid in
the form of shares of restricted stock, which are valued for such purposes at
their fair market value on the date the Compensation Committee approves the
issuance of such shares. Shares of restricted stock issued as partial payment
of Performance Awards under the Long-Term Plan are subject to the restrictions
imposed by the Company's Stock Incentive Plan on restricted stock awards under
that plan. Those restrictions are summarized in the description of the Stock
Incentive Plan set forth in this Proxy Statement beginning on page 17.
DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION. If during a
calendar year a Plan Member dies, becomes disabled, retires, or is
involuntarily terminated for reasons other than cause, the Plan Member (or his
or her estate in the case of death) is entitled under the Long-Term Plan to an
amount equal to twice the amount paid or to be paid to the Plan Member on the
Performance Award Payment Date occurring within that calendar year, less any
amount actually paid to the Plan Member on such Performance Award Payment
Date.
EVENTS OF FORFEITURE. If the Company has no net income for book purposes for
the last calendar year of any Performance Period, no Performance Award may be
paid with respect to the Performance Period ending in that calendar year. If a
Plan Member is terminated for cause, no Performance Award may be paid under
the Long-Term Plan. A Plan Member who voluntarily terminates his or her
employment with the Company prior to any Performance Award Payment Date shall
forfeit all rights to any payment that is or may be due under the Long-Term
Plan. If the Long-Term Plan is terminated, no Performance Awards may be paid
to any Plan Member on or after the date of such action, unless the
Compensation Committee expressly provides otherwise.
FEDERAL INCOME TAX CONSEQUENCES
Cash payouts under the Long-Term Plan are includible in a Plan Member's
gross income in the year of receipt. The Company will withhold appropriate
payroll or other taxes from such cash payout. The federal income tax
consequences of a restricted stock award are summarized in the description of
the Stock Incentive Plan set forth in this Proxy Statement beginning on page
17.
PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any, will
be received by or allocated to any persons or group of persons under the Long-
Term Plan in future years. Such determinations are subject to future
performance of the Company. However, the amounts paid under the Long-Term Plan
to Named Executives for 1997 and 1996 are set forth in the LTIP payouts column
of the Summary Compensation Table on page 7 of this Proxy Statement.
STOCKHOLDER VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares present and voting at the
Annual Meeting is required to approve the Long-Term Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDED AND RESTATED LONG-TERM PERFORMANCE PLAN.
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OTHER MATTERS
Any proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be submitted in writing, addressed to the
Secretary of the Company at its principal executive offices, and received by
the Company by January 20, 1999, in order to be considered for inclusion in
the proxy statement and form of proxy for that meeting.
The Company's audited financial statements as of and for the year ended
December 31, 1997, together with the report thereon of Deloitte & Touche LLP,
independent public accountants, are included in the Company's Annual Report on
Form 10-K under the Securities Exchange Act of 1934. A copy of the 1997 Annual
Report on Form 10-K, together with the Company's 1997 Summary Annual Report to
Stockholders, is being furnished to stockholders together with this Proxy
Statement.
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent accountants for the current fiscal year. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting and
will respond to appropriate questions.
This Proxy Statement and the accompanying form of proxy will initially be
mailed to stockholders on or about April [ ], 1998 together with copies of
the 1997 Annual Report on Form 10-K and 1997 Summary Annual Report to
Stockholders. In addition, the Company is requesting banks, brokers and other
custodians, nominees and fiduciaries to forward these proxy materials and the
accompanying reports to the beneficial owners of shares of the Company's
Common Stock held by them of record and will reimburse them for their
reasonable out-of-pocket expenses for doing so. The Company has retained
Georgeson & Company Inc. to assist in the solicitation of proxies for a fee
estimated to be $8,500 plus out-of-pocket expenses. Solicitation of proxies
also may be made by officers and employees of the Company. The cost of
soliciting proxies will be borne by the Company.
The Board of Directors does not know of any matters to be presented at the
meeting other than those set forth in the accompanying Notice of Meeting.
However, if any other matters properly come before the meeting, it is intended
that the holders of proxies will vote thereon in their discretion.
By order of the Board of Directors,
John G. Hritz
Secretary
Middletown, Ohio
April 9, 1998
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ANNEX A
AK STEEL HOLDING CORPORATION
STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF MARCH 19, 1998)
ARTICLE 1. AMENDMENT AND RESTATEMENT, PURPOSE, AND DURATION
1.1 AMENDMENT AND RESTATEMENT OF THE PLAN. AK Steel Holding Corporation, a
Delaware corporation (the "Company"), previously established an incentive
compensation plan known as the "AK Steel Holding Corporation 1994 Stock
Incentive Plan" (the "Plan"). The Plan is hereby amended and restated as set
forth in this document effective as of March 19, 1998. The Plan permits the
grant of Nonqualified Stock Options and awards of Restricted Stock to
directors, executive officers and key employees of the Company.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of the Company's shareholders, and by providing
Participants with an incentive for outstanding performance. The Plan is
further intended to enhance the Company's ability to motivate, attract, and
retain the services of Participants upon whose judgment, interest, and special
effort the successful conduct of its operation is largely dependent.
1.3 DURATION OF THE PLAN. The Plan shall remain in effect until all Shares
subject to it shall have been purchased or acquired or are no longer available
for Awards according to the Plan's provisions, subject to the right of the
Board to terminate the Plan at any time pursuant to Article 10 herein. In no
event may an Award be granted under the Plan on or after December 31, 2007.
Termination of the Plan shall not affect the rights of any person under an
outstanding Award Agreement unless otherwise specifically provided in such
Award Agreement.
ARTICLE 2. DEFINITIONS. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award" means either or both of an Option Award or a Restricted Stock
Award.
(b) "Award Agreement" means either or both of an Option Award Agreement
or a Restricted Stock Award Agreement. A Participant is bound by the terms
of an Award Agreement and this Plan by reason of accepting the benefits of
the Award.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule l3d-3 of the General Rules and Regulations under the Exchange Act.
(d) "Beneficiary" means the person or persons named by a Participant to
succeed to the Participant's rights under any then unexpired Award
Agreements. Each such designation shall: (i) revoke all prior designations
by the same Participant; (ii) be in a form acceptable to the Committee; and
(iii) be effective only when delivered to the Committee by the Participant
in writing and during the Participant's lifetime. No beneficiary shall be
entitled to any notice of any change in a designation of beneficiary. In
the absence of any such designation, the Participant's estate shall be the
beneficiary.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" means a willful engaging in gross misconduct materially and
demonstrably injurious to the Company or any subsidiary or affiliate
thereof, including AK Steel Corporation. "Willful" means an act or omission
in bad faith and without reasonable belief that such act or omission was in
or not opposed to the best interests of the Company or any subsidiary or
affiliate thereof, including AK Steel Corporation. "Cause" shall be
determined in good faith by the Committee.
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(g) "Change in Control" shall be deemed to have occurred if:
(i) any person (other than a trustee or other fiduciary holding
securities under an employee benefit plan in which employees of the
Company participate) becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing forty percent
(40%) or more of the combined voting power of the Company's then
outstanding voting securities; or
(ii) during any period of two (2) consecutive years individuals who
at the beginning of such period constitute the Board, including for
this purpose any new Director of the Company (other than a Director
designated by a person who has entered into an agreement with the
Company to effect a transaction described in clauses (i) or (iii) of
this Subsection (g)) whose election by the Board or nomination for
election by the shareholders of the Company was approved by a vote of a
least two-thirds ( 2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation (other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%)
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation) or the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(h) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(i) "Committee" means the committee, as specified in Article 3, appointed
by the Board to administer the Plan.
(j) "Company" means AK Steel Holding Corporation, a Delaware corporation,
or any successor thereto, as provided in Article 13 herein.
(k) "Director" means any individual who is a member of the Board and who
is not an Employee.
(l) "Disability" means a physical or mental condition which, in the
judgment of the Committee, renders a Director unable to serve or an
Employee unable to perform the duties of his position with the Company or,
in the case of an Employee, the duties of another available position with
the Company for which the Employee is suited by education, background and
training. Any Employee found to be qualified for disability benefits under
AK Steel Holding Corporation's long term disability plan or by the Federal
Social Security Administration will be considered to be disabled under this
Plan, but qualification for such benefits shall not be required as evidence
of disability hereunder.
(m) "Employee" means any common law employee of the Company or any
subsidiary or affiliate thereof, including AK Steel Corporation. A Director
is not an Employee solely by reason of his position as a Director and,
unless otherwise employed by the Company, shall not be considered to be an
Employee under this Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
(o) "Fair Market Value" shall mean:
(i) if the Shares are traded on an established United States national
stock exchange or in the United States over-the-counter market with
prices reported on the NASDAQ, the average of the highest and lowest
sales prices for Shares on the relevant date (or, if there were no
sales of Shares on such date, the weighted average of the mean between
the highest and lowest sale prices for Shares on the nearest preceding
trading day on which there were sales of Shares); and
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(ii) if the Shares are not traded as described in clause (i), the
fair market value of such Shares on the relevant date, as determined in
good faith by the Board.
(p) "Insider" shall mean an Employee who is, on the relevant date, an
executive officer or ten percent (10%) Beneficial Owner of the Company, as
defined under Section 16 of the Exchange Act, or a Director.
(q) "Nonqualified Stock Option" or "Option" means an option to purchase
Shares from the Company at a price established in an Option Award
Agreement. No incentive stock option within the meaning of Code Section 422
may be granted under this Plan.
(r) "Option Award" means, individually or collectively, a grant under
this Plan of a Nonqualified Stock Option.
(s) "Option Award Agreement" means an agreement setting forth the terms
and provisions applicable to an Option Award granted to a Participant under
this Plan.
(t) "Option Price" means the price at which a Share may be purchased by a
Participant under the terms of an Option Award Agreement.
(u) "Par Value" shall mean the designated par value of one Share.
(v) "Participant" means any Director or Employee who possesses an
unexpired Award granted under the Plan.
(w) "Restricted Stock" means Shares granted to a Participant subject to
certain restrictions on the Participant's right to sell, transfer, assign,
pledge, encumber or otherwise alienate or hypothecate the Shares except in
accordance with the terms of this Plan.
(x) "Restricted Stock Award" means, individually or collectively, a grant
under this Plan of Shares of Restricted Stock.
(y) "Restricted Stock Award Agreement" means an agreement setting forth
the terms and provisions applicable to a Restricted Stock Award of Shares
under this Plan.
(z) "Retirement" shall mean termination of employment with the Company
and any affiliate of the Company with eligibility to immediately commence
to receive a pension under the Company's noncontributory defined benefit
pension plan as in effect on the Employee's termination date. For a
Participant who is not participating in such plan, Retirement shall mean
any termination of employment with the Company which would have entitled
such Participant to be eligible to immediately commence to receive a
pension under the Company's non-contributory defined benefit pension plan
had the Participant been a participant.
(aa) "Shares" means the shares of voting common stock of the Company.
(bb) "Window Period" means the period beginning on the third business day
following the date of public release of the Company's quarterly sales and
earnings information, and ending on the twelfth business day following such
date.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two (2) Directors. The members of the Committee
shall be appointed from time-to-time by, and shall serve at the sole
discretion of, the Board. The Committee shall be comprised solely of Directors
who (a) are eligible to administer the Plan pursuant to Rule 16b-3(c)(2) under
the Exchange Act and, (b) are "outside directors" within the meaning of
Section 162(m) of the Code and related regulations.
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The Committee may employ such legal or other counsel, consultants and agents
as it may deem desirable for the administration of the Plan and may rely upon
any opinion or computation received from any such counsel, consultant or
agent. Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company. No member or former member
of the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option Award or Restricted
Stock Award granted hereunder.
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power, subject
to the provisions of this Plan, except as limited by law or by the Articles of
Incorporation or Bylaws of the Company: (i) to determine the size and types of
Awards (except as to Awards to Directors which shall be limited to the size
and shall be subject to the conditions expressly permitted by this Plan); (ii)
to determine the terms and conditions of each Award Agreement in a manner
consistent with the Plan; (iii) to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; (iv) to establish, amend,
or waive rules and regulations for the Plan's administration; and, (v) subject
to the provisions of Article 10 herein, to amend the terms and conditions of
any outstanding Award Agreement to the extent such terms and conditions are
within the discretion of the Committee as provided in the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. The Committee may delegate its
authority hereunder to the extent permitted by law. In no event shall a
Director who is a Participant vote in any matter related solely to such
Director's Award under this Plan.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its shareholders, Directors, Employees,
Participants, and their estates, beneficiaries or assignees. In all cases,
Awards to Directors shall be subject to the same terms, conditions and
interpretations applicable generally to Awards to non-Director Participants.
3.4 ARBITRATION. Each Participant who is granted an Award hereunder agrees
as a condition of the Award to submit to binding arbitration any dispute
regarding the Plan or any Award made under the Plan, including by way of
illustration and not limitation, any decision of the Committee or any action
of the Company respecting the Plan. Such arbitration shall be held in
accordance with the rules of the American Arbitration Association before an
arbitrator selected by the Company and acceptable to the Participant. If the
Participant objects to the appointment of the arbitrator selected by the
Company, and the Company does not appoint an arbitrator acceptable to the
Participant, then the Company and the Participant shall each select an
arbitrator and those two arbitrators shall collectively appoint a third
arbitrator who shall alone hear and resolve the dispute. The Company and the
Participant shall share equally the cost of arbitration. No Company agreement
of indemnity, whether under the Articles of Incorporation, the bylaws or
otherwise, and no insurance purchased by the Company shall apply to pay or
reimburse any Participant's costs of arbitration.
ARTICLE 4. SHARES SUBJECT TO GRANT UNDER THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in this Section and
in Section 4.3, an aggregate of 11,000,000 Shares shall be available for the
grant of Option Awards and Restricted Stock Awards under the Plan (hereinafter
called the "Share Pool"); provided, however, that no person may be granted
Awards under the Plan in any calendar year with respect to more than 600,000
Shares. The Committee, in its sole discretion, shall determine the appropriate
division of the Share Pool as between Option Awards and Restricted Stock
Awards. Shares issued upon exercise of any Award may be either authorized and
previously unissued Shares or reacquired Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) the grant of an Award to a Participant shall reduce the Shares
available in the Share Pool for grant under the Plan by the number of
Shares subject to the Award; and
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(b) to the extent that an Option is settled in cash rather than by the
delivery of Shares, the Share Pool shall be reduced by the number of Shares
represented by the cash settlement of the Option (subject to the limitation
set forth in Section 4.2 herein).
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires or lapses for any reason, any Shares then subject to such
Award again shall be available for grant under the Plan and shall return to
the Share Pool.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, an appropriate adjustment shall
be made in the number and class of Shares which may be delivered under the
Plan, and in the number and class of and/or price of Shares subject to any
then unexercised and outstanding Awards, as determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights. The number of Shares subject to any Award shall always
be a whole number.
4.4 RIGHTS AS A SHAREHOLDER. No person shall have any rights as a
shareholder with respect to Shares subject to an Option Award until the date
the Company receives full payment of the Option price, including any sum due
for withholding pursuant to Section 6.6. A person who has Restricted Shares
shall have the rights of an owner of Shares, except to the extent those rights
are expressly limited by then applicable restrictions on transfer contained in
this Plan and the Restricted Stock Award Agreement.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Directors who are not Employees, officers who are
Employees, and Employees who are not officers but who are recommended by the
Chairman of the Board shall be eligible to be Participants in this Plan.
5.2 PARTICIPATION. A person who is eligible to be a Participant shall become
a Participant upon receipt of an Award in accordance with the terms of this
Plan.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS.
(a) Options may be granted to an eligible Employee at any time and from
time to time as shall be determined by and in the sole discretion of the
Committee, subject to the provisions of Section 4.1.
(b) Options with respect to ten thousand (10,000) Shares shall be granted
to each Director who is not employed by the Company on the date of his or
her election to the Board, subject to the following terms and conditions:
(i) the option price described in Section 6.3 shall be the Fair Market
Value of the Shares on the date of grant;
(ii) the Options shall be exercisable in accordance with Section 6.4
until the tenth (10th) anniversary of the date of grant;
(iii) the restriction on the right to exercise the Options in accordance
with Section 6.5(a) shall lapse on the first anniversary of the date of the
Option Award;
(iv) for the purposes of this Plan, death shall be treated as death while
employed under Section 6.8(a)(i); Disability or Retirement from the Board
shall be subject to the provisions of Sections 6.8(b) and (c); failure to
be reelected shall be an involuntary termination subject to the terms of
Section 6.8(d)(i); and resignation or failure to stand for reelection shall
be deemed to be a voluntary termination subject to the terms of Section
6.8(e); and
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(v) the limited right of transferability shall be granted in accordance
with Section 6.7.
Except as above modified or interpreted, the provisions of this Section 6
shall apply to Directors in the same manner it applies to others.
6.2 OPTION AWARD AGREEMENT. Each Option shall be granted pursuant to a
written Option Award Agreement, signed by the appropriate member of the
Committee or its designee, and specifying the terms and conditions applicable
to the Options granted including: the Option Price; the period during which
the Option may be exercised; the number of Shares to which the Option
pertains; the conditions under which the Option is exercisable; and such other
provisions as the Committee may from time to time determine. The Option
Agreement also shall specify that the Option is intended to be a Nonqualified
Stock Option whose grant is intended not to fall under the provisions of Code
Section 422.
6.3 OPTION PRICE. The Option Price for each Share subject to purchase shall
be determined by the Committee and stated in the Option Award Agreement but in
no event shall be less than the Fair Market Value of the Shares on the date of
grant of the Award.
6.4 DURATION OF OPTIONS. Each Option shall be exercisable for such period as
the Committee shall determine at the time of grant. No Option shall be
exercisable later than the tenth (10th) anniversary of the date of its grant.
6.5 EXERCISE OF OPTIONS.
(a) Options granted under the Plan shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall in
each instance approve, which need not be the same for each grant or for
each Participant. No Option shall be exercisable prior to six (6) months
following the date of its grant. The Committee may provide, by rule or
regulation or in any Option Award Agreement, that the exercisability of an
Option may be accelerated or extended under various circumstances to a date
not later than the latest expiration date permitted in accordance with
Section 6.4.
(b) Each Option shall be exercisable only by delivery to the Committee in
care of the Secretary of the Company of a written notice of exercise in
such form as the Committee may require. A notice of exercise shall: specify
the number of shares to be purchased, shall be signed by the Participant or
holder of the Option and shall be dated the date the signature is affixed.
6.6 PAYMENT. A written notice of exercise shall be accompanied by full
payment for the Shares to be purchased. Subject to the provisions of Article
11, payment shall include any income or employment taxes required to be
withheld by the Company from the employee's compensation with respect to the
Shares so purchased.
(a) The Option Price upon exercise of any Option shall be payable to the
Company in full either: (i) in cash or its equivalent, or (ii) by tendering
previously acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price (provided that the Shares
so tendered shall have been held by the Participant for at least six (6)
months prior to such tender), in proper form for transfer and accompanied
by all requisite stock transfer tax stamps or cash in lieu thereof, or
(iii) by a combination of (i) and (ii).
(b) The Committee also may allow cashless exercises as permitted under
Federal Reserve Board Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
(c) As soon as practicable after receipt of a written notice of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon
the number of Shares purchased.
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6.7 RESTRICTIONS ON TRANSFERABILITY. Except to the extent permitted under
this Section 6.7, no Option granted under the Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, all Options granted to a
Participant under the Plan shall be exercisable during his or her lifetime
only by such Participant. Notwithstanding the foregoing, the right to purchase
Shares subject to an Option Award may be transferred, in whole or in part, by
a Participant during a Participant's lifetime, to a Participant's spouse,
child or grandchild, or to the trustee of a testamentary or other grantor
trust established primarily for the benefit of a Participant's spouse, child
or grandchild; provided that:
(i) A transfer shall only be effective upon receipt by the Secretary of
the Company, on behalf of the Committee, of written notice of transfer in
such form as the Committee may require;
(ii) A notice of transfer shall: (A) identify the name, address and
relationship of the transferee to the Participant; (B) identify the Option
Award which is the subject of the transfer, the number of Shares
transferred and the consideration paid, if any, for the transfer; (C) in
the case of a transfer to a trustee, include evidence satisfactory to the
Committee that under the terms of the trust the transfer is for the
exclusive benefit of a Participant's spouse, child or grandchild; and (D)
include a copy of the authorized signature of each person who will have the
right to exercise the option to purchase and all information relevant to
the rights transferred; and
(iii) A transferee may not transfer any rights. Upon the transferee's
death, all rights shall revert to the Participant.
The Committee may impose such additional restrictions on transferability as
it may deem advisable, including, without limitation, restrictions under
applicable Federal securities laws, under the requirements of any stock
exchange or market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT. Except as hereinafter provided, Options
granted under the Plan may not be exercised by any person, including a
transferee of any rights under an Option Award, unless the Participant is then
in the employ of the Company and unless the Participant has remained
continuously so employed since the date of grant of the Option. Unless
otherwise provided by the Committee and subject to the duration established in
accordance with Section 6.4, Options shall be exercisable in the following
circumstances:
(a) in the case of a Participant's death
(i) while employed by the Company, by the Beneficiary or
representative during a period of 3 years following the date of the
Participant's death; and in such a case may be exercised even before
expiration of the 6-month or longer period established in accordance
with Section 6.5(a); or
(ii) after his Retirement, but before the third anniversary of his
Retirement, by the Beneficiary or representative on or before the third
anniversary of his Retirement;
(b) in the case of the Participant's Disability, by the Participant or by
the Participant's appointed representative during a period of 3 years
following the date of the Participant's last day worked;
(c) in the case of the Participant's Retirement, by the Participant
during a period of 3 years following the date of the Participant's last day
worked;
(d) in the case of a Participant's involuntary termination of employment:
(i) for reasons other than Cause, by the Participant during a period
of 3 years following the date of the Participant's last day worked; or
(ii) for Cause, by the Participant on or before his last day worked
whether or not the Committee has made its final determination that
there is Cause for termination as of that last day worked; and
(e) in the case of a Participant's voluntary termination of employment,
on or before his last day worked.
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ARTICLE 7. RESTRICTED STOCK.
7.1 RESTRICTED STOCK AWARDS. Restricted Stock Awards may be made at any time
while the Plan is in effect. Such Awards may be made to any Director or
Employee whether or not prior Restricted Stock Awards have been made to said
person.
7.2 NOTICE. The Committee shall promptly provide each Participant with
written notice setting forth the number of Shares covered by the Restricted
Stock Award and such other terms and conditions relevant thereto, including
the purchase price, if any, to be paid for the Shares by the Recipient of the
Award, as may be considered appropriate by the Compensation Committee.
7.3 RESTRICTIONS ON TRANSFER. The purpose of these restrictions is to
provide an incentive to each Participant to continue to provide services to
the Company and to perform his or her assigned tasks and responsibilities in a
manner consistent with the best interests of the Company and its stockholders.
The Shares awarded pursuant to the Plan shall be subject to the following
restrictions:
(a) Stock certificates evidencing shares shall be issued in the sole name
of the Participant (but may be held by the Company until the restrictions
shall have lapsed in accordance herewith) and shall bear a legend which, in
part, shall provide that:
"The shares of common stock evidenced by this certificate are subject
to the terms and restrictions of the AK Steel Holding Corporation Stock
Incentive Plan. These shares are subject to forfeiture or cancellation
under the terms of said Plan. These shares may not be sold,
transferred, assigned, pledged, encumbered or otherwise alienated or
hypothecated except pursuant to the provisions of said Plan, a copy of
which Plan is available from the Secretary of the Company upon
request."
(b) No Restricted Stock may be sold, transferred, assigned, pledged,
encumbered or otherwise alienated or hypothecated unless, until and then
only to the extent that said restrictions shall have lapsed in accordance
with Section 7.4.
7.4 LAPSE OF RESTRICTIONS. The restrictions set forth in Section 7.3 will
lapse only if, on the date restrictions are to lapse in accordance with this
Section 7.4, the Participant has been continuously employed by the Company or
has been a Director from the time of the Restricted Stock Award to such date
of lapse. If the lapse schedule would result in the lapse of restrictions in a
fractional share interest, the number of shares will be rounded down to the
next lowest number of full shares for each of the first two lapse dates, with
the balance to relate to the final lapse date. Unless otherwise provided by
the Board:
(a) with respect to a Restricted Stock Award to an Employee, the
restrictions set forth in Section 7.3 shall lapse with respect to twenty-
five percent (25%) of the Shares subject thereto on the second anniversary
of the date of the Award; and with respect to an additional twenty-five
percent (25%) of the Shares subject thereto on each of the third, fourth
and fifth anniversaries of the date of the Award; and
(b) with respect to a Restricted Stock Award to a Director, the
restrictions set forth in Section 7.3 shall lapse upon completion of the
full tenure for which the Director was elected to serve on the Board.
7.5 VESTING AND FORFEITURE. Upon the lapse of the restrictions set forth in
Section 7.3 with respect to Shares covered by a Restricted Stock Award,
ownership of the Shares with respect to which the restrictions have lapsed
shall vest in the holder of the Award. In the event of termination of an
Employee's employment, or in the event a Director fails to complete his or her
full tenure on the Board, all Shares then still subject to the restrictions
described in Section 7.3 shall be forfeited by the Participant and returned to
the Company for cancellation, except as follows:
(a) Restrictions with respect to Shares covered by an outstanding
Restricted Stock Award held by a Director shall lapse upon the date of his
or her mandatory retirement from the Board by reason of age. In the case of
an Employee's retirement, the Committee may in its sole discretion elect to
waive all or any portion of the restrictions remaining in respect of a
Restricted Stock Award held by that employee. Any
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outstanding restrictions shall lapse in case of death or Disability of the
holder of a Restricted Stock Award. Evidence of Disability will be
entitlement to disability income benefits under the Federal Social Security
Act; and
(b) The Committee may at any time in its sole discretion accelerate or
waive all or any portion of restrictions remaining in respect of the Shares
covered by an outstanding Restricted Stock Award (to the extent not waived
pursuant to paragraph (a) above). This authority may be exercised for any
or all Participants; provided that the waiver in any particular case shall
not bind the Committee in any other similar case, it being the intention of
the Company to grant the Committee the broadest possible discretion to act
or to refuse to act in this regard. Any such action taken on behalf of a
Director shall require the unanimous consent of all Directors (excluding
the Director for whose benefit the action is taken) then in office.
7.6 RIGHTS AS STOCKHOLDER. Upon issuance of the stock certificates
evidencing the Restricted Stock Award and subject to the restrictions set
forth in Section 7.3 hereof, the Participant shall have all the rights of a
stockholder of the Company with respect to the Shares of Restricted Stock
represented by that Restricted Stock Award, including the right to vote the
shares and receive all dividends and other distributions paid or made with
respect thereto.
7.7 AWARDS TO DIRECTORS. The Board may, during any calendar year, determine
by majority vote to pay all or a portion of a Director's fees to be earned in
such calendar year by means of an Award of Restricted Stock; provided that at
least fifty (50%) of the Director's fees shall be paid in the form of a
Restricted Stock Award, such Award to be made effective as of December 31 to
Directors then serving. Any Director who leaves the Board during the year
shall be paid in cash for services rendered.
ARTICLE 8. RIGHTS OF EMPLOYEES.
8.1 EMPLOYMENT. Nothing in the Plan shall: (i) interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time; (ii) confer upon any Participant any right to continue in the employ
of the Company or its subsidiaries; or (iii) be evidence of any agreement or
understanding, express or implied, that the Company will employ any
Participant in any particular position at a particular rate of compensation or
for any particular period of time.
8.2 PARTICIPATION. Nothing in this Plan shall be construed to give any
person any right to be granted any Award other than at the sole discretion of
the Committee or as giving any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan. No Participant shall have
the right to be selected to receive an Award under this Plan, or, having been
so selected, to be selected to receive a future Award.
ARTICLE 9. CHANGE IN CONTROL.
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited by the terms of this Article 9:
(a) any and all outstanding Options previously granted hereunder, if not
then exercisable, shall become immediately exercisable and any restrictions
on the transfer of Shares of Restricted Stock shall lapse and expire
effective as of the date of the Change in Control;
(b) subject to Article 10 herein, the Committee shall have the authority
to make any modifications to any Option Award determined by the Committee
to be appropriate before the effective date of the Change in Control; and
(c) if the Shares are no longer traded over a national public securities
exchange following a Change in Control:
(i) Participants holding Options shall have the right to require the
Company to make a cash payment to them in exchange for their Options.
Such cash payment shall be contingent upon the
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Participant's surrendering the Option. The amount of the cash payment
shall be determined by adding the total "spread" on all outstanding
Options. For this purpose, the total "spread" shall equal the
difference between: (1) the higher of (i) the highest price per Share
paid or offered in any transaction related to a Change in Control of
the Company; or (ii) the highest Fair Market Value per Share at any
time during the ninety (90) calendar day period preceding a Change in
Control; and (2) the Option Price applicable to each Share held under
Option; and
(ii) Participants holding Shares of Restricted Stock shall have the
right to require the Company to make a cash payment to them in exchange
for their Restricted Stock. Such cash payment shall be contingent upon
the Participant's surrendering the Restricted Stock. The amount of the
cash payment shall be not less than the higher of (1) the highest price
per Share paid or offered in any transaction related to a Change in
Control of the Company; or (2) the highest Fair Market Value per Share
at any time during the ninety (90) calendar day period preceding a
Change in Control.
ARTICLE 10. AMENDMENT, MODIFICATION, AND TERMINATION.
10.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time and
from time to time, alter, amend, suspend or terminate this Plan in whole or in
part; provided, that no amendment that (i) requires shareholder approval in
order for this Plan to continue to comply with Rule 16b-3 under the Exchange
Act, including any successor to such Rule, or (ii) would modify the provisions
of Section 3.1 or the first paragraph of Section 4.1 of this Plan, shall be
effective unless such amendment shall be approved by the requisite vote of
shareholders of the Company entitled to vote thereon.
10.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan without the written consent of the Participant holding
such Award. If consent is not given, the Award shall continue in force in
accordance with its terms without modification.
ARTICLE 11. WITHHOLDING.
11.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes, (including the
Participant's FICA obligation, if any) required by law to be withheld with
respect to any taxable event arising or as a result of this Plan. Failure to
cooperate with the Company in paying any such withholding shall cause the
cancellation of the Shares subject to the taxable transaction without
liability for such cancellation.
11.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or the vesting of Shares under a Restricted Stock Award,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All elections shall be irrevocable, made in writing, signed
by the Participant. In addition to the foregoing requirements, an Insider may
elect Share withholding only if such election is made in compliance with
Section 16 of the Exchange Act.
ARTICLE 12. INDEMNIFICATION. The Company shall indemnify and hold harmless
each member of the Committee, or of the Board, against and from any loss,
cost, liability or expense, including reasonable attorney's fees and costs of
suit, that may be imposed upon or reasonably incurred by the member in
connection with or resulting from any claim, action, suit, or proceeding to
which the member may be a party defendant or in which the member may be
involved as a defendant by reason of any action taken or any failure to act
under the Plan and against and from any and all amounts paid in Settlement
thereof or paid in satisfaction of any judgment in any such action, suit, or
proceeding against the member, provided that the member shall give the Company
an opportunity, at its own expense, to handle and defend the same before the
member undertakes to handle and defend it or agrees to any settlement of the
claim. The foregoing right of indemnification shall be in addition to,
10
<PAGE>
and not exclusive of, any other rights of indemnification to which the member
may be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise. This right shall not extend to any action by a
Director as a claimant of rights under the Plan, whether on the Director's
behalf or on behalf of a class of persons which would include the Director,
unless filed in the form of a declaratory judgment seeking relief for the
Company or the Plan.
ARTICLE 13. SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
ARTICLE 14. LISTING OF SHARES AND RELATED MATTERS. If at any time the
Committee shall determine that the listing, registration or qualification of
the Shares subject to any Award on any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of, or in connection with,
the granting of an Option or the issuance of Shares thereunder or the granting
of a Restricted Stock Award, no Option that is the subject of such Award may
be exercised in whole or in part and no certificates may be issued or reissued
in respect of any Restricted Stock that is the subject of such Award unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
ARTICLE 15. DEFERRAL ELECTIONS. The Committee may permit a Participant to
elect to defer his or her receipt of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option, or due to the lapse
of restrictions with respect to Restricted Stock, awarded under the Plan. If
any such election is permitted, the Committee shall establish rules and
procedures for such deferrals, including, but not limited to: (i) the payment
or crediting, with respect to deferred amounts credited in cash, of reasonable
interest or other investment return determined with reference to any
investment performance measurement selected by the Committee from time to
time, (ii) the payment or crediting of dividend equivalents in respect of
deferrals credited in Share units, and (iii) the Participant's rights with
respect to the Options and/or Restricted Stock subject to such deferral
election during the period between the Participant's deferral election and the
exercise of the Options or the lapse of restrictions with respect to the
Restricted Stock.
ARTICLE 16. LEGAL CONSTRUCTION.
16.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
16.2 SEVERABILITY. If any provision of the Plan shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable for any reason,
the illegality, invalidity or unenforceability shall not affect the remaining
parts of the Plan, and the Plan shall be construed and enforced as if the
illegal, invalid or unenforceable provision had not been included. Unless
otherwise specifically provided in a final order by a court of competent
jurisdiction, no such judicial determination shall deprive a Participant of
the economic advantage, if any, of unexpired Options under any Option Award
Agreement or of Shares of Restricted Stock then subject to restrictions under
the terms of the Plan or the Restricted Stock Award Agreement. If any such
judicial determination does or would have an adverse impact then the Company
shall assure the Participant of the right to receive cash in an amount equal
to the value of any Award under the Plan prior to the determination of its
invalidity in the same manner as if such Award was lawful and the benefit
granted thereunder could be enjoyed in accordance with the terms of the Award.
16.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
11
<PAGE>
16.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule l6b-13
or its successors under the Exchange Act. To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee. The obligations of the Company to issue or transfer Restricted
Shares awarded pursuant to the Plan or Option Shares upon exercise of an
Option shall be subject to: compliance with all applicable governmental rules
and regulations, and administrative action; the effectiveness of a
registration statement under the Securities Act of 1933, as amended, if deemed
necessary or appropriate by the Company; and the condition that listing
requirements (or authority for listing upon official notice of issuance) for
each stock exchange on which outstanding shares of the same class may then be
listed shall have been satisfied.
16.5 GOVERNING LAW. To the extent not preempted by federal law, this Plan
and all agreements hereunder shall be construed in accordance with and
governed by the laws of the State of Delaware.
12
<PAGE>
ANNEX B
AK STEEL CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF MARCH 19, 1998)
INTRODUCTION
The name of this plan is the AK Steel Corporation Annual Management
Incentive Plan (the "Plan"). AK Steel Corporation (the "Company") adopted the
Plan in 1994 to enhance management's focus on specific performance goals for
the Company with respect to safety, quality and net income. The Plan is hereby
amended and restated as set forth in this document effective as of March 19,
1998.
The Plan is a payroll practice. The Plan is not intended to be an employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, and the Plan shall be interpreted,
administered and enforced to the extent possible in a manner consistent with
that intent. Any obligations under the Plan shall be the joint and several
obligations of AK Steel Holding Corporation, the Company, and each of their
respective subsidiaries and affiliates. The Plan is designed to comply with
the performance-based compensation exception under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
1. ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall consist of not less than two members of the Board who shall be
appointed from time to time by, and shall serve at the discretion of, the
Board. Each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code. The Human Resources Department of the
Company shall maintain records of authorized participants for each period
described in paragraph 4 below (the "Performance Period").
2. PARTICIPATION
Certain management employees of the Company ("Plan Member" or "Plan
Members") shall be eligible to participate in this Plan upon selection by the
Chairman of the Board or his delegate, the Executive Management Committee (the
"EMC"), subject to the approval and/or review from time to time by the
Committee. The EMC shall consist of the Company's Chief Executive Officer,
President, Vice President--Human Resources, and such other individuals as may
be designated from time to time by the Chief Executive Officer.
Notwithstanding the foregoing, any covered employee as defined in Section
162(m)(3) of the Code ("Covered Employee"), shall be designated to participate
in the Plan by the Committee in writing within the time period prescribed by
Section 162(m) of the Code and related regulations.
3. BONUS OPPORTUNITY TARGETS
Each Plan Member shall be assigned a Bonus Opportunity Target Percentage
("Target Percentage") and a Bonus Opportunity Maximum Percentage ("Maximum
Percentage") at the time he is selected for participation in this Plan based
on his level of management in the Company and/or his overall contribution to
the Company. A Plan Member's Target Percentage and/or Maximum Percentage may
be changed from time to time at the discretion of the Committee or the EMC.
Notwithstanding the foregoing, the Committee shall assign or change, in
writing, the Target Percentage and Maximum Percentage for any Covered Employee
for a particular Performance Period within the time period prescribed by
Section 162(m) of the Code and related regulations.
A Plan Member's Target Percentage with respect to any Performance Period is
the percentage of his annual base compensation (as defined below) that may be
awarded to him by the Company as additional compensation if the Company
achieves certain goals as determined by the Committee and approved by the
Board with respect
<PAGE>
to net income, safety, and quality. A Plan Member's Maximum Percentage, which
is two times his Target Percentage, is the percentage of his annual base
compensation that may be awarded if the Company achieves for the Performance
Period not only the established safety and quality goals, but exceeds the
established net income goal by a certain level as determined by the Committee.
A Plan Member's annual base compensation for purposes of this Plan shall be
his actual base salary paid during the relevant Performance Period.
Any amount awarded to a Plan Member under this Plan shall be referred to
herein as a "Performance Award." If a Plan Member is designated to participate
in the Plan after the commencement of a Performance Period, such individual's
Performance Award will be prorated based on his period of participation in the
Plan during such Performance Period.
4. PERFORMANCE PERIODS
Each Performance Period shall be the twelve-month period commencing on
January 1 and ending on the following December 31.
5. PERFORMANCE AWARD PAYMENT DATE
The Performance Award Payment Date is the date on which any Performance
Awards are paid to Plan Members, which date shall not be more than 120 days
following the last day of each Performance Period. Before any Performance
Award is paid to a Covered Employee, the Committee shall certify in writing
that the criteria for receiving a Performance Award pursuant to the terms of
the Plan have been satisfied.
6. PERFORMANCE AWARD DETERMINATION
For each Performance Period, the Committee shall assign, in writing, with
respect to each of the performance factors of net income, safety, and quality,
a threshold goal, a target goal, and, with respect to the net income factor,
the level which if exceeded will result in the maximum Performance Awards
being made. If the threshold goals are not met, no Performance Awards shall be
made. Achievement of performance between the threshold and target goals shall
result in Performance Awards being made. The threshold and target goals, and
the level of net income required to achieve the maximum Performance Awards,
shall be communicated in writing by the Human Resources Department to Plan
Members as soon as practicable at the beginning of each Performance Period,
but with respect to Covered Employees, no later than the time period
prescribed by Section 162(m) of the Code and related regulations. Different
threshold and target goals may apply with respect to a specific plant,
department, or area of the Company. Notwithstanding the foregoing, Performance
Awards may be granted with respect to achievement of the threshold goal for
safety even if the threshold goal for net income for the Performance Period is
not achieved.
The Committee may establish such other parameters and procedures for
determining Performance Awards as it deems appropriate with respect to any
Performance Period. The maximum Performance Award (including any special
Performance Award pursuant to paragraph 7 below) that may be paid to any
Covered Employee with respect to any Performance Period shall be $3 million.
The Committee may delegate the calculation of Performance Awards to the
Company's Chief Financial Officer, subject to the Committee's supervision.
7. SPECIAL AWARDS TO COVERED EMPLOYEES
Subject to the provisions of paragraph 6 above, the Committee may grant with
respect to any Performance Period a special Performance Award to any Covered
Employee if a specified level of net income is achieved by the Company. The
level of net income required to achieve any such award and the amount of any
such award shall be established by the Committee in writing within the time
period prescribed by Section 162(m) of the Code and related regulations.
2
<PAGE>
8. FORM OF PAYMENT
All Performance Awards will be paid in a single lump-sum payment in cash.
The Company will withhold such payroll or other taxes as it determines to be
necessary or appropriate.
9. EVENTS OF FORFEITURE
A. NO NET INCOME
If the Company has no net income for book purposes with respect to any
Performance Period, no Performance Awards will be granted with respect to
that Performance Period; however, if any Performance Awards for that period
would otherwise be granted, such Performance Awards may be deferred to a
subsequent Performance Period in the sole discretion of the Committee.
B. DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION FOR OTHER THAN
CAUSE
If during a Performance Period a Plan Member dies, becomes totally and
permanently disabled, retires or is involuntarily terminated for reasons
other than cause, the Plan Member (or his estate in the case of death)
shall be entitled under this Plan to a prorated Performance Award, if any,
based on his period of participation during such Performance Period. Any
such amount shall be paid in cash and in full satisfaction of any claims
the Plan Member may have under this Plan.
C. TERMINATION FOR CAUSE
If a Plan Member is terminated for cause, as cause may be defined by the
Committee or the EMC, no Performance Award shall be paid under this Plan.
D. VOLUNTARY TERMINATION
Subject to the above provisions of this paragraph 9, a Plan Member who
voluntarily terminates employment with the Company prior to any Performance
Award Payment Date shall forfeit all rights hereunder to any payment that
is or may be due on or after such Performance Award Payment Date.
E. REMOVAL FROM THE PLAN
A Plan Member may be removed from further participation in this Plan by
the Committee or the EMC and such removal shall be effective as of the date
determined by the Committee or the EMC. In such a case, the Plan Member
shall be eligible to receive a prorated Performance Award, if any, based on
his period of participation during the Performance Period in which his
removal occurs.
F. LEAVE OF ABSENCE
If during a Performance Period, a Plan Member is absent from employment
with the Company for a period of more than ninety (90) consecutive calendar
days for any reason, the Plan Member's participation in the Plan will be
suspended for the period of such absence exceeding ninety (90) days, and he
shall be entitled under this Plan to a prorated Performance Award, if any,
based on his period of participation during such Performance Period.
10. SOURCE OF BENEFITS
The Company shall make any cash payments due under the terms of this Plan
directly from its assets or from any trust that the Company may choose to
establish and maintain from time to time. Nothing contained in this Plan shall
give or be deemed to give any Plan Member or any other person any interest in
any property of
3
<PAGE>
any such trust or in any property of the Company, nor shall any Plan Member or
any other person have any right under this Plan not expressly provided by the
terms hereof, as such terms may be interpreted and applied by the Committee in
its discretion.
11. LIABILITY OF OFFICERS AND PLAN MEMBERS
No current or former employee, officer, director or agent of AK Steel
Holding Corporation or of the Company shall be personally liable to any Plan
Member or other person to pay any benefit payable under any provision of this
Plan or for any action taken by any such person in the administration or
interpretation of this Plan.
12. UNSECURED GENERAL CREDITOR
The rights of a Plan Member (or his beneficiary in the event of his death)
under this Plan shall only be the rights of a general unsecured creditor of
the Company, and the Plan Member (or his designated beneficiary) shall not
have any legal or equitable right, interest, or other claim in any property or
assets of the Company by reason of the establishment of this Plan.
13. ARBITRATION
Any dispute under this Plan shall be submitted to binding arbitration
subject to the rules of the American Arbitration Association before an
arbitrator selected by the Company and acceptable to the Plan Member. If the
Plan Member objects to the appointment of the arbitrator selected by the
Company, and the Company does not appoint an arbitrator acceptable to the Plan
Member, then the Company and the Plan Member shall each select an arbitrator
and those two arbitrators shall collectively appoint a third arbitrator who
shall alone hear and resolve the dispute. The Company and the Plan Member
shall share equally the costs of arbitration. No Company agreement of
indemnity, whether under its Articles of Incorporation, the bylaws or
otherwise, and no insurance by the Company, shall apply to pay or reimburse
any Plan member's costs of arbitration.
14. AMENDMENT OR TERMINATION OF PLAN
The Board expressly reserves for itself and for the Committee the right and
the power to amend or terminate the Plan at any time. In such a case, unless
the Committee otherwise expressly provides at the time the action is taken, no
Performance Awards shall be paid to any Plan Member on or after the date of
such action.
15. MISCELLANEOUS
A. ASSIGNABILITY
Plan Members shall not alienate, assign, sell, transfer, pledge,
encumber, attach, mortgage, or otherwise hypothecate or convey in advance
of actual receipt the amounts, if any, payable hereunder. No part of the
amounts payable hereunder shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony,
or separate maintenance, nor shall any person have any other claim to any
benefit payable under this Plan as a result of a divorce or the Plan
Member's, or any other person's bankruptcy or insolvency.
B. OBLIGATIONS TO THE COMPANY
If a Plan Member becomes entitled to payment of any amounts under this
Plan, and if at such time the Plan Member has any outstanding debt,
obligation, or other liability representing an amount owed to the Company,
then the Company may offset such amounts against the amounts otherwise
payable under this Plan. Such determination shall be made by the Committee
or the Board.
4
<PAGE>
C. NO PROMISE OF CONTINUED EMPLOYMENT
Nothing in this Plan or in any materials describing or relating to this
Plan grants, nor should it be deemed to grant, any person any employment
right, nor does participation in this Plan imply that any person has been
employed for any specific term or duration or that any person has any right
to remain in the employ of the Company. Subject to the provisions of
paragraph 9 hereof, the Company retains the right to change or terminate
any condition of employment of any Plan Member without regard to any effect
any such change has or may have on such person's rights hereunder.
D. CAPTIONS
The captions to the paragraphs of this Plan are for convenience only and
shall not control or affect the meaning or construction of any of its
provisions.
E. PRONOUNS
Masculine pronouns and other words of masculine gender shall refer to
both men and women.
F. VALIDITY
In the event any provision of this Plan is found by a court of competent
jurisdiction to be invalid, void, or unenforceable, such provision shall be
stricken and the remaining provisions shall continue in full force and
effect.
G. APPLICABLE LAW
To the extent not preempted by federal law, this Plan shall be construed
in accordance with and governed by the laws of the State of Delaware.
5
<PAGE>
ANNEX C
AK STEEL CORPORATION
LONG-TERM PERFORMANCE PLAN
(AS AMENDED AND RESTATED AS OF MARCH 19, 1998)
INTRODUCTION
The name of this plan is the AK Steel Corporation Long-Term Performance Plan
(the "Plan"). AK Steel Corporation (the "Company") adopted the Plan in 1995 to
increase management's focus on the Company's long-term performance relative to
that of its principal competitors in the carbon flat rolled steel industry
(the "Peer Group") and to reward certain employees for enhancing the
profitability of the Company over extended periods of time. The Plan is hereby
amended and restated as set forth in this document.
The Plan is a payroll practice. The Plan is not intended to be an employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended , and the Plan shall be interpreted,
administered and enforced to the extent possible in a manner consistent with
that intent. Any obligations under the Plan shall be the joint and several
obligations of AK Steel Holding Corporation, the Company, and each of their
respective subsidiaries and affiliates. The Plan is designed to comply with
the performance-based compensation exception under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
1. ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall consist of not less than two members of the Board who shall be
appointed from time to time by, and shall serve at the discretion of, the
Board. Each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and related regulations. The Human
Resources Department of the Company shall maintain records of authorized
participants for each period described in paragraph 4 below (the "Performance
Period").
2. PARTICIPATION
Each elected officer of the Company shall be eligible to participate in this
Plan, and certain other management employees of the Company ("Plan Member" or
"Plan Members") shall be eligible to participate in this Plan upon selection
by the Chairman of the Board or his delegate, the Executive Management
Committee ( the "EMC"), subject to the approval and/or review from time to
time by the Committee. The EMC shall consist of the Company's Chief Executive
Officer, President, Vice President, Human Resources, and such other
individuals as may be designated from time to time by the Chief Executive
Officer. Notwithstanding the foregoing, any covered employee, as defined in
Section 162(m)(3) of the Code ("Covered Employee"), shall be designated to
participate in the Plan by the Committee in writing within the time period
prescribed by Section 162(m) of the Code and related regulations.
3. BONUS OPPORTUNITY TARGETS
Each Plan Member shall be assigned a Bonus Opportunity Target Percentage
("Target Percentage") at the time the Plan Member is selected for
participation in this Plan. A Plan Member's Target Percentage may be changed
from time to time at the discretion of the Committee or, in the case of Plan
Members who are not elected officers, by the EMC. Notwithstanding the
foregoing, the Committee shall assign or change, in writing, the Target
Percentage for any Covered Employee for a particular Performance Period within
the time period prescribed by Section 162(m) of the Code and related
regulations.
A Plan Member's Target Percentage is the maximum percentage of his annual
base salary (as defined below) that can be achieved with respect to any
Performance Period for which he is selected for participation. A Plan Member's
Target Percentage is multiplied by his annual base salary for the final year
of the Performance
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Period for which the calculation of a Performance Award is made in order to
arrive at his Bonus Opportunity Target Amount ("Target Amount"). A Plan
Member's annual base salary for purposes of this Plan shall be determined by
multiplying his monthly rate of base salary for the last month of the relevant
Performance Period by twelve (12).
Any amount awarded to a Plan Member under this Plan shall be referred to
herein as a "Performance Award." If a Plan Member is designated to participate
in the Plan after the commencement of a Performance Period, his Performance
Award, if any, will be prorated based on his period of participation in the
Plan during such Performance Period.
4. PERFORMANCE PERIODS
Each Performance Period shall consist of a period of three consecutive
calendar years, with the first such three-year period commencing on January 1,
1995, and ending on December 31, 1997.
5. PERFORMANCE AWARD PAYMENT DATE
The Performance Award Payment Date is the date on which any Performance
Awards are paid to Plan Members, which date shall not be more than 120 days
following the last day of the final year of each Performance Period. Before
any Performance Award is paid to a Covered Employee, the Committee shall
certify in writing that the criteria for receiving a Performance Award
pursuant to the terms of this Plan have been satisfied.
6. PEER GROUP
The Peer Group shall consist of Bethlehem Steel Corporation, Inland Steel
Company, LTV Corporation, National Steel Corporation, Nucor Corporation, and
U.S. Steel Group. The Peer Group may be modified from time to time at the
discretion of the Committee; however, to the extent any modification of the
Peer Group impacts the Performance Award to be received by a Covered Employee,
such modification will be made within the time period prescribed by Section
162(m) of the Code and related regulations.
7. PERFORMANCE AWARD DETERMINATION
Any Performance Award to be paid to a Plan Member with respect to a
Performance Period shall be the amount determined by multiplying his Target
Amount under paragraph 3 above by the sum of the applicable percentages for
the completed Performance Period and for the final year of the completed
Performance Period as set forth in the chart below. The chart is based upon
the Company's operating profit per ton shipped (excluding special and unusual
items) as compared to operating profit per ton shipped (excluding special and
unusual items) of the Peer Group. The maximum Performance Award that may be
paid to any Covered Employee with respect to any Performance Period shall be
$3 million. The Committee may delegate the calculation of Performance Awards
to the Company's Chief Financial Officer, subject to the Committee's
supervision.
The percentages to be applied to a Plan Member's Target Amount in
determining any Performance Award with respect to a Performance Period shall
be based upon the following chart:
<TABLE>
<CAPTION>
PERCENTAGES OF TARGET AMOUNT
OPERATING PROFIT PER BASED UPON RELATIVE
TON SHIPPED PERFORMANCE RANKING
-------------------- ---------------------------- PERCENTAGE FOR FINAL
RANKING OF COMPANY PERCENTAGE FOR COMPLETED YEAR OF COMPLETED
VERSUS PEER GROUP PERFORMANCE PERIOD PERFORMANCE PERIOD
<S> <C> <C>
1 100% 100%
2 50% 50%
3 25% 25%
4 15% 15%
5-7 0% 0%
</TABLE>
2
<PAGE>
8. FORM OF PAYMENT
All Performance Awards with respect to a Performance Period will be paid in
a single lump-sum payment either in cash or in a combination of cash and whole
shares of Restricted Stock as determined by the Committee; however, no more
than fifty percent (50%) of any Performance Award shall be paid in Restricted
Stock. The Company shall withhold such payroll or other taxes as it determines
to be necessary or appropriate.
If any portion of Performance Awards with respect to a Performance Period
are to be paid in whole shares of Restricted Stock, such shares shall be
issued pursuant to grants of Restricted Stock under the AK Steel Holding
Corporation Stock Incentive Plan (as amended and restated as of March 19,
1998) (the "SIP"); however, notwithstanding any provision in the SIP to the
contrary, the restrictions on such shares granted under the SIP pursuant to
this Plan shall lapse as to 20% of those shares on each of the first, second,
third, fourth and fifth anniversaries of the Performance Award Payment Date on
which such Restricted Stock was issued. Restricted Stock issued pursuant to
this Plan shall be valued at the average of the high price and the low price
of shares traded on the date the Committee approves issuance of such
Restricted Stock.
9. EVENTS OF FORFEITURE
A. NO NET INCOME
If the Company has no net income for book purposes for the last calendar
year of any Performance Period, no Performance Award will be paid with
respect to the Performance Period ending with that calendar year. The
Performance Award for that period, if any is due, will either be forfeited
or the payment of the Performance Award will be deferred in the sole
discretion of the Committee.
B. DEATH, DISABILITY, RETIREMENT OR INVOLUNTARY TERMINATION FOR OTHER THAN
CAUSE
If during a calendar year a Plan Member dies, becomes totally and
permanently disabled, retires, or is involuntarily terminated for reasons
other than cause, the Plan Member (or his estate in the case of death)
shall be entitled under this Plan to an amount equal to twice the amount
paid or to be paid to the Plan Member on the Performance Award Payment Date
occurring within that calendar year, less any amount actually paid to the
Plan Member on such Performance Award Payment Date. Any amount payable
under this paragraph 9b shall be paid on the next to occur of the
Performance Award Payment Date falling within that calendar year or within
60 days following such Plan Member's death or other termination of
employment. Any such amount shall be paid in cash and in full satisfaction
of any claims the Plan Member may have under this Plan.
C. TERMINATION FOR CAUSE
If a Plan Member is terminated for cause, as cause may be defined by the
Committee or the EMC, no Performance Award shall be paid under this Plan.
D. VOLUNTARY TERMINATION
Subject to the provisions of paragraph 9b, a Plan Member who voluntarily
terminates employment with the Company prior to any Performance Award
Payment Date shall forfeit all rights hereunder to any payment that is or
may be due on or after such Performance Award Payment Date.
E. REMOVAL FROM THE PLAN
A Plan Member may be removed from further participation in this Plan by
the Committee or the EMC and such removal shall be effective as of the date
determined by the Committee or the EMC. In such a case, the Plan Member
shall be eligible to receive a prorated Performance Award, if any, based on
his period of participation during the Performance Period ending in the
year in which his removal occurs.
3
<PAGE>
10. SOURCE OF BENEFITS
The Company shall make any cash payments due under the terms of this Plan
directly from its assets or from any trust that the Company may choose to
establish and maintain from time to time. Nothing contained in this Plan shall
give or be deemed to give any Plan Member or any other person any interest in
any property of any such trust or in any property of the Company, nor shall
any Plan Member or any other person have any right under this Plan not
expressly provided by the terms hereof, as such terms may be interpreted and
applied by the Committee in its discretion.
11. LIABILITY OF OFFICERS AND PLAN MEMBERS
No current or former employee, officer, director or agent of AK Steel
Holding Corporation or of the Company shall be personally liable to any Plan
Member or other person with respect to any benefit under this Plan or for any
action taken by any such person in the administration or interpretation of
this Plan.
12. UNSECURED GENERAL CREDITOR
The rights of a Plan Member (or his designated beneficiary in the event of
his death) under this Plan shall only be the rights of a general unsecured
creditor of the Company, and the Plan Member (or his designated beneficiary)
shall not have any legal or equitable right, interest, or other claim in any
property or assets of the Company by reason of the establishment of this Plan.
13. ARBITRATION
Any dispute under this Plan shall be submitted to binding arbitration
subject to the rules of the American Arbitration Association before an
arbitrator selected by the Company and acceptable to the Plan Member. If the
Plan Member objects to the appointment of the arbitrator selected by the
Company, and the Company does not appoint an arbitrator acceptable to the Plan
Member, then the Company and the Plan Member shall each select an arbitrator
and those two arbitrators shall collectively appoint a third arbitrator who
shall alone hear and resolve the dispute. The Company and the Plan Member
shall share equally the costs of arbitration. No Company agreement of
indemnity, whether under its Articles of Incorporation, the bylaws or
otherwise, and no insurance by the Company, shall apply to pay or reimburse
any Plan Member's costs of arbitration.
14. AMENDMENT OR TERMINATION OF PLAN
The Board expressly reserves for itself and for the Committee the right and
the power to amend or terminate the Plan at any time. In such a case, unless
the Committee otherwise expressly provides at the time the action is taken, no
Performance Awards shall be paid to any Plan Member on or after the date of
such action.
15. MISCELLANEOUS
A. ASSIGNABILITY
Plan Members shall not alienate, assign, sell, transfer, pledge,
encumber, attach, mortgage, or otherwise hypothecate or convey in advance
of actual receipt the amounts, if any, payable hereunder. No part of the
amounts payable hereunder shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony,
or separate maintenance, nor shall any person have any other claim to any
benefit payable under this Plan as a result of a divorce or the Plan
Member's, or any other person's bankruptcy or insolvency.
B. OBLIGATIONS TO THE COMPANY
If a Plan Member becomes entitled to payment of any amounts under this
Plan, and if at such time the Plan Member has any outstanding debt,
obligation, or other liability representing an amount owed to the Company,
then the Company may offset such amounts against the amounts otherwise
payable under this Plan. Such determination shall be made by the Committee
or the Board.
4
<PAGE>
C. NO PROMISE OF CONTINUED EMPLOYMENT
Nothing in this Plan or in any materials describing or relating to this
Plan grants, nor should it be deemed to grant, any person any employment
right, nor does participation in this Plan imply that any person has been
employed for any specific term or duration or that any person has any right
to remain in the employ of the Company. Subject to the provisions of
paragraph 9 hereof, the Company retains the right to change or terminate
any condition of employment of any Plan Member without regard to any effect
any such change has or may have on such person's rights hereunder.
D. CAPTIONS
The captions to the paragraphs of this Plan are for convenience only and
shall not control or affect the meaning or construction of any of its
provisions.
E. PRONOUNS
Masculine pronouns and other words of masculine gender shall refer to
both men and women.
F. VALIDITY
In the event any provision of this Plan is found by a court of competent
jurisdiction to be invalid, void, or unenforceable, such provision shall be
stricken and the remaining provisions shall continue in full force and
effect.
G. APPLICABLE LAW
To the extent not preempted by federal law, this Plan shall be construed
in accordance with and governed by the law of the State of Delaware.
5
<PAGE>
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AK STEEL HOLDING CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
--------------------
REQUEST FOR ADMITTANCE
--------------------
Attendance at the Annual Meeting is limited to holders of record of the
Company's Common Stock as of March 31, 1998, or their duly appointed
proxies, and to guests of management.
If you plan to attend the meeting in person, please complete, sign,
detach and return this reply post card.
(Please Print)
Stockholder's Name __________________________________________________
Address _____________________________________________________________
_____________________________________________________________
Number of Shares Owned at March 31, 1998 ____________________________
Signature ___________________________________________________________
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
-------------
-------------
-------------
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BUSINESS REPLY MAIL
FIRST CLASS PERMIT NO. 2, MIDDLETOWN, OHIO
-------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
AK Steel Holding Corporation
703 Curtis Street
Middletown, Ohio 45043-0600
Attn: Treasurer
<PAGE>
AK STEEL HOLDING CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
The undersigned stockholder of AK Steel Holding Corporation (the
"Company") hereby appoints Richard M. Wardrop, Jr., Richard E. Newsted and John
G. Hritz, and each of them, as attorneys and proxies, each with full power of
substitution, to represent the undersigned at the Annual Meeting of Stockholders
of the Company to be held on May 21, 1998, and at any adjournments thereof, with
authority to vote at such meeting all shares of Common Stock of the Company
owned by the undersigned on March 31, 1998, in accordance with the directions
indicated herein.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED IN
ITEM 1 AND FOR APPROVAL OF THE PROPOSALS IN EACH OF ITEMS 2 THROUGH 5 HEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NINE
NOMINEES NAMED "FOR" APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY, "FOR"
APPROVAL OF THE AMENDMENTS TO THE STOCK INCENTIVE PLAN, "FOR" APPROVAL OF THE
ANNUAL MANAGEMENT INCENTIVE PLAN AND "FOR" APPROVAL OF THE LONG-TERM PERFORMANCE
PLAN.
<PAGE>
Item 1. ELECTION OF DIRECTORS:
FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote [ ]
below (except as for all nominees listed below
marked to the contrary
below)
Nominees: Allen Born, John A. Georges, Dr. Bonnie Guiton Hill, Robert H.
Jenkins, Lawrence A Leser, Robert E. Northam, Cyrus Tang, Dr. James A. Thomson
and Richard M. Wardrop, Jr.
(INSTRUCTIONS: To withhold authority to vote for an individual nominee
named above, strike a line through that nominee's name)
Item 2. Approval of the amendment of the Company's Certificate of
Incorporation to increase its authorized Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 3. Approval of amendments to the Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 4. Approval of the Annual Management Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Item 5. Approval of the Long-Term Performance Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
And to transact such other business as may properly come before the meeting or
any adjournments thereof.
Date: _____________________ Signature(s):________________________________
(Please date and sign exactly as name appears
hereon. When signing as attorney,
administrator, trustee, custodian or guardian,
give full title as such. Where more than one
owner, all should sign. Proxies executed by a
partnership or corporation should be signed in
the full partnership or corporate name by a
partner or authorized officer.)
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
